##### 



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.


Amendment No. 1 to
FORM 10-K/A

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-20001

NATIONAL VISION, INC.

(Exact name of Registrant as specified in its charter)


Georgia
(State or other jurisdiction of
incorporation or organization)

58-1910859
(I.R.S. Employer Identification No.)

296 Grayson Highway, Lawrenceville, Georgia
(Address of principal executive offices)

30045
(Zip Code)

Registrants telephone number, including area code: (770) 822-3600

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share
12% Senior Secured Notes, due 2009

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]   No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  ]   No [X]

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X]   No [  ]

The number of shares of Common Stock of the registrant outstanding as of March
1, 2002, was 5,000,000, including shares that are part of the disputed claims
reserve in the registrants Chapter 11 Case. The aggregate market value of
shares of Common Stock held by non-affiliates of the registrant as of March 1,
2002, was approximately $4 million based on a closing price of $0.80 per share
on the American Stock Exchange on such date. For purposes of this computation,
all executive officers and directors of the registrant are deemed to be
affiliates. Such determination should not be deemed to be an admission that
such directors and officers are, in fact, affiliates of the registrant.





---



##### 



EXPLANATORY NOTE

National Vision, Inc. (the Company) is filing this
Amendment No. 1 to its Form 10-K for 2001 to give effect to the
restatement described in Note 17 to the accompanying
Consolidated Financial Statements. Note 17 describes the effects of the restatement.

Except
for the Certifications under
Rule 13a-14 and Section 1350 of Title 18, all information
contained herein is as of March 22, 2002, and does not reflect
any events or changes in information, other than the restatement,
that may have occurred subsequent to March 22, 2002. The Company
has also revised its use of Non-GAAP financial measures, such as
EBITDA, to conform to the requirements of Regulation G, which
applies to disclosures made on and after March 28, 2003. For a discussion of events and
developments relating to periods subsequent to March 22, 2002,
see the Companys reports filed with the Securities and Exchange Commission for such subsequent periods, including the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2002, which is being filed concurrently with this Form 10-K/A.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, http://www.nationalvision.com, as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.

1



---



##### 



(NATIONAL VISION INC LOGO)




PART I

ITEM 1.    BUSINESS

OVERVIEW

National Vision, Inc. (the Company) is a retail optical company, with 514
vision centers throughout the United States and Mexico. Our locations sell a
wide range of optical products, including eyeglasses, contact lenses, and
sunglasses. We offer the services of optometrists at substantially all of our
locations. These optometrists are typically independent of us and operate
their own practices within our retail locations. To support our retail
operations, we also operate two manufacturing and distribution centers.

HISTORY OF THE COMPANY

National Vision, Inc. was founded as National Vision Associates, Ltd. in 1990,
when it entered into a master license agreement with Wal-Mart Stores, Inc.
(Wal-Mart). The original agreement gave the Company the right to operate 75
vision centers in Wal-Mart stores. The agreement was expanded for up to 190
vision centers in 1992 and expanded again in 1994 for up to 400 stores.

In late 1997, the Company made a strategic decision to diversify the revenue
base through acquisitions in the freestanding optical market. Between October
1997 and October 1998, the Company acquired three prominent chains in the
freestanding optical market. More specifically, Midwest Optical, Inc.
was acquired in October 1997 with 51 freestanding retail optical
centers in four Midwest states. Frame-n-Lens Optical, Inc. was
acquired in July 1998 with 150 freestanding vision centers in California and
120 vision centers located within Sams Clubs. New West Eyeworks, Inc. was acquired in October 1998 with 175 retail optical centers in 13
states with more than 120 vision centers in freestanding locations and more
than 50 host vision centers in Fred Meyer stores. Following the acquisitions,
the Company changed its name to Vista Eyecare, Inc.

To fund the acquisitions, the Company issued $125 million in senior notes in
October 1998 bearing interest at 12.75% per annum. At the time the Senior
Notes were issued, the Company entered into a $25 million secured credit
facility to provide liquidity for the day-to-day operations.

Sales shortfalls in the freestanding stores caused adverse pressure on cash
flow and liquidity. In October 1999, the Company announced that, because of
slow sales in its recently acquired businesses, it would use the allowed 30-day
grace period for making the interest payment due on the Senior Notes. In
November 1999, the Company replaced its prior secured credit facility and used
the proceeds from a new credit facility to make the interest payment that had
been due under the Senior Notes.

The Company continued to experience weak sales and cash flow problems with the
freestanding stores throughout early 2000. Experiencing liquidity difficulties
given limited availability under the credit facility, and after failing to
negotiate an out-of-court restructuring with the holders of the Senior Notes,
the Company filed for reorganization under Chapter 11 on April 5, 2000.

During the bankruptcy process, the Company closed or disposed of all of its
freestanding stores and closed all of its host vision centers operating in
Sams Clubs and in Meijer Thrifty Acre stores. On May 31, 2001, the Company
emerged from bankruptcy as an optical retailer operating vision centers in host
departments, including Wal-Mart and Fred Meyer locations.

Upon emerging from bankruptcy, the Company changed its name to National Vision,
Inc. (National Vision) and implemented fresh start accounting. As a
result, all assets and liabilities were restated to reflect their respective
fair values. The consolidated financial statements after emergence are those
of a new reporting entity (the Successor) and are not comparable to the
financial statements of the pre-confirmation company (the Predecessor). A
black line has been drawn in the financial statements to distinguish
Predecessor and Successor Company results.

2



---



##### 



DEPENDENCE ON WAL-MART

We operate 400 vision centers in domestic Wal-Mart stores, all of which operate
pursuant to a master license agreement (See Business-Leased Department
Agreements). These units generated approximately 83% of our revenue in 2001
and represent the most profitable of the Companys host retail operations
measured as a percent of sales. We therefore depend on Wal-Mart and on our
agreement with them for much of our operations.

DATE OF INFORMATION

Unless otherwise expressly stated, all information in this Business section of
this Form 10-K/A is as of December 29, 2001.

VISION CENTER OPERATIONS

Our vision centers typically occupy between 1,000 and 1,500 square feet,
including areas for merchandise display, customer service, and contact lens
fitting. Each vision center maintains inventory of approximately 1,000
eyeglass frames and 550 pairs of contact lenses, along with sunglasses and
other optical accessories. Our two optical laboratories deliver prescription
eyewear to all our vision centers. The vision centers located in Wal-Mart
typically have a finishing laboratory, which allows for the vision center to
provide one hour service for most single vision prescription lenses. These
vision centers carry inventory of approximately 725 pairs of spectacle lenses.

MARKETING

We are a value provider of optical goods and stress that theme in our
marketing. We offer everyday low prices at our vision centers. National Vision
also has a satisfaction guaranteed customer policy. We are vigilant about ways
to lower our own costs so we may pass savings on to our customers.

MANAGED VISION CARE

We expect that retail optical sales through numerous managed vision care
programs will increase over the next several years as a percentage of overall
retail optical sales. Under managed vision care plans, members fulfill their
eyecare and eyewear needs at specific locations designated by the plan sponsor.
We believe our network of vision centers combined with the convenience of
their locations and our ability to offer low prices should enable us to make
competitive bids for managed care contracts.

MARKS

Our vision centers in Wal-Mart are identified as the Vision Center located in
Wal-Mart. We use the Vista Optical name to identify some of our vision
centers operating in Fred Meyer locations. As part of our agreement to sell
the freestanding vision centers, we have agreed to phase out our use of the
Vista name. We have obtained a license to continue our use of this name
through January 2004. The licensor of this mark recently filed for bankruptcy,
and it is possible that we will lose our right to use this name.

EMPLOYEES

We employ 2,180 associates on a full-time basis and 840 associates on a
part-time basis. We have 2,550 associates engaged in retail sales, 240 in
laboratory and distribution operations, and 230 in management and
administration. Apart from our retail employees in Mexico, none of our
employees are governed by any collective bargaining agreements. We believe
that our employment relations are generally good.

OPTOMETRISTS

Optometrists are important to the success of our vision centers. We strive to
have an optometrist on a full-time time basis at most of our locations. These
optometrists are typically independent from us and lease a portion of our
locations for an eye examination facility. We typically charge rent to these
optometrists, in exchange for the premises and the equipment which we provide.
Our agreement with Wal-Mart contemplates that we generally will have an
optometrist on duty at least 48 hours each week. Our relationships with
optometrists are subject to extensive regulation. (See Business-Government
Regulation.)

MANUFACTURING AND DISTRIBUTION

We operate two manufacturing and distribution facilities that supply
substantially all merchandise requirements of our vision centers. The
facilities are located in Lawrenceville, Georgia (this facility also includes
our central administrative offices) and St. Cloud, Minnesota.

3



---



##### 



Our distribution centers provide lens blanks, frames, contact lenses, and
sunglasses to our vision centers. We use an overnight delivery service to ship
completed orders and replenishment items to the vision centers. The
distribution centers and the manufacturing facilities are interfaced with our
management information system. Raw materials consist of frames and lenses and
are readily available from multiple vendors.

MANAGEMENT INFORMATION SYSTEM

In 2000, National Vision completed the development of a new point of sale
system. We began installing the system in our vision centers in the fall of
2000 and completed the installation in all of our units in 2002. The system is
working substantially as planned. The system was designed to upgrade data
processing, broaden capabilities at the retail level, and improve the
processing of managed care transactions.

LEASED DEPARTMENT AGREEMENTS

We have agreements governing our operations in host environments, such as
Wal-Mart. Typically, each agreement is for a base term, followed by an option
to renew for a specified length of time. The agreements provide for payments
of minimum and percentage rent, and also contain customary provisions for
leased department operations. (See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Summary of Lease Agreements.)

GOVERNMENT REGULATION

Our business is heavily regulated by federal, state, and local law. We must
comply with federal laws such as the Social Security Act (which applies to our
participation in Medicare programs), the Health Insurance Portability and Accountability Act of
1996 (which governs our participation in managed care programs), and the Food
and Drug Administration Act (which regulates medical devices such as contact
lenses). In addition, all states have passed laws that govern or affect our
arrangements with the optometrists who practice in our vision centers. Some
states, such as California, Texas, North Carolina, and Kansas, have
particularly extensive and burdensome requirements that affect the way we do
business. In California, optometrists who practice adjacent to our retail
locations are providers to and subtenants of a subsidiary, which is licensed as
a single-source HMO. This subsidiary is regulated by the Department of Managed
Health Care. This agency has recently required that we change our way of doing
business. This new way of doing business will increase our costs in
California. There is no assurance that the Department will find our new way of
business satisfactory. Our costs of compliance could continue to increase as a
result. Depending on its views, this Department could also seek to revoke our
HMO license. Such a revocation would have a material adverse impact on our
business.

Many of these states also have adopted laws that mirror the federal laws
described above. Local ordinances (such as zoning requirements) can also
impose significant burdens and costs of compliance. Frequently, our
competitors sit on state and local boards. Our risks and costs of compliance
are often increased as a result.

We believe that we substantially comply with material regulations that apply to
our business.

COMPETITION

The retail eyecare industry is extremely competitive. We compete with national
companies such as Lenscrafters and Cole; we also compete with numerous regional
and local firms. In addition, optometrists, ophthalmologists, and opticians
provide many of the same goods and services we provide. The level and
intensity of competition can vary dramatically depending on the particular
market. We believe that we have numerous competitive advantages, such as our
everyday low pricing, product selection, and quality and consistency of
service.

We also compete for managed care business. Our competition for this business
is principally the larger national and regional optical firms. Competition for
this business is driven by size of provider network, quality and consistency of
service, and by pricing of vision care services. We have one of the largest
networks in the country and believe that the size of the network gives us a
competitive advantage.

Several of our competitors have significantly greater financial resources than
we do. As a result, they may be able to engage in extensive and prolonged
price promotions that may adversely affect our business. They may also be able
spend more than we do for advertising.

MEXICO OPERATIONS

We operate 35 vision centers in Mexico under a master license agreement with
Wal-Mart. Our operations in Mexico face unique risks, such as currency
devaluations, inflation, difficulties in cross-cultural marketing, and similar
factors.

4



---



##### 



Information relative to sales and identifiable assets for the United States and
Mexico for the seven months ended December 29, 2001, the five months ended June
2, 2001, and for the years ended December 30, 2000 and January 1, 2000 are
summarized in the following tables (amounts in thousands):

United States
    
    Mexico
    
    Other
    
    ConsolidatedSUCCESSOR COMPANY:Seven months ending December
29, 2001Sales
    
    $
    132,633
    
    
    $
    2,910
    
    
    $
    
    
    
    $
    135,543Identifiable assets
    
    $
    168,600
    
    
    $
    2,617
    
    
    $
    
    
    
    $
    171,217PREDECESSOR COMPANY:Five months ending June 2, 2001Sales
    
    $
    118,407
    
    
    $
    2,150
    
    
    $
    
    
    
    $
    120,557Identifiable assets
    
    $
    184,034
    
    
    $
    2,654
    
    
    $
    
    
    
    $
    186,688Fiscal year 2000Sales
    
    $
    302,902
    
    
    $
    4,792
    
    
    $
    
    
    
    $
    307,694Identifiable assets
    
    $
    88,666
    
    
    $
    2,222
    
    
    $
    
    
    
    $
    90,888Fiscal year 1999Sales
    
    $
    325,101
    
    
    $
    3,954
    
    
    $
    
    
    
    $
    329,055Identifiable assets
    
    $
    217,690
    
    
    $
    2,328
    
    
    $
    201
    
    
    $
    220,219


Availability of Financial Information

The Companys Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, may be obtained by any shareholder without charge upon
written request to National Vision, Inc., 296 Grayson Highway, Lawrenceville,
GA 30045, Attn: Investor Relations. In addition, the Companys most recent
public filings with the Securities and Exchange Commission are available on the
Companys website at www.nationalvision.com.

ITEM 2.    PROPERTIES

Our 514 vision centers in operation as of December 29, 2001 are located as
follows:

Location
    
    Total
    
    Location
    
    TotalAlabama
    
    
    8
    
    
    Nevada
    
    
    7Alaska
    
    
    12
    
    
    New Hampshire
    
    
    4Arizona
    
    
    14
    
    
    New Jersey
    
    
    13California
    
    
    98
    
    
    New Mexico
    
    
    10Colorado
    
    
    8
    
    
    New York
    
    
    26Connecticut
    
    
    10
    
    
    North Carolina
    
    
    60Florida
    
    
    5
    
    
    North Dakota
    
    
    4Georgia
    
    
    37
    
    
    Oregon
    
    
    32Hawaii
    
    
    4
    
    
    Pennsylvania
    
    
    18Idaho
    
    
    3
    
    
    Puerto Rico
    
    
    1Kansas
    
    
    10
    
    
    South Carolina
    
    
    11Kentucky
    
    
    1
    
    
    South Dakota
    
    
    1Louisiana
    
    
    1
    
    
    Tennessee
    
    
    2Maine
    
    
    1
    
    
    Texas
    
    
    7Maryland
    
    
    3
    
    
    Virginia
    
    
    23Massachusetts
    
    
    5
    
    
    Washington
    
    
    29Minnesota
    
    
    1
    
    
    West Virginia
    
    
    7Montana
    
    
    2
    
    
    Wyoming
    
    
    1Mexico
    
    
    35


5



---



##### 



Our headquarters in Lawrenceville, Georgia are located in a 66,000 square foot
building that includes a distribution center and lens laboratory. The building
is leased through January 2009.

The Company also has a regional facility located in St. Cloud, Minnesota. The
20,000 square foot St. Cloud facility is subject to a lease that expires in
October 2007. The facility contains an optical laboratory.

ITEM 3.    LEGAL PROCEEDINGS

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was confirmed by the
bankruptcy court on May 18, 2001. On May 31, 2001, after securing a new
revolving credit facility with Fleet Capital Corporation, the Company emerged
from bankruptcy.

Under the Plan, the Companys pre-petition unsecured claims were converted into
new secured notes and common stock. The secured notes have a face value of
$120 million, provide for the payment of interest of 12% twice a year at the
end of March and September and are subordinated to debt under the Companys
credit facility. The notes are payable over eight years with principal
repayments based on excess cash flow for the prior six month period, adjusted,
if necessary, to ensure the Company has at least $3 million in cash, measured
as of the end of June and December of each year, with the first measurement
date occurring at the end of 2001. The principal repayments are made by the
end of the second month subsequent to the measurement date. On February 28,
2002, the Company made its first principal redemption in the amount of $1.6
million. The Company can provide no assurance as to whether it will generate
sufficient cash to make future principal repayments or as to the amount of any
such repayments. Five million shares of new common stock, par value $0.01,
were issued, based on the Companys reorganization value. Under the Plan,
former shareholders received no value for their interests, consequently, all
common stock issued prior to emergence from bankruptcy was cancelled.

The Companys reorganization value was developed by the Company, the Official
Committee of Unsecured Creditors and their respective financial advisors. The
reorganization value was based on a calculation of the present value of the
free cash flows under the Companys financial projections, including an
assumption of a terminal value. Such projections were necessarily based on a
variety of estimates and assumptions which might not be realized and are
inherently subject to significant uncertainties and contingencies. Some
assumptions inevitably will not materialize. The projections therefore should
not be considered as a guarantee or other assurance of actual results.

As part of the bankruptcy proceedings, Myrel Neumann, a Director of the
Company, has approximately $1.0 million of outstanding claims against the
Company, which are included in the Companys disputed claims reserve. These
claims originated with NVIs 1997 purchase of a company owned by Dr. Neumann.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the last quarter
of fiscal 2001.

6



---



##### 



(NATIONAL VISION INC LOGO)

PART II

ITEM 5.    MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

On May 31, 2001, the Companys Plan of Reorganization became effective,
resulting in the cancellation of 21,169,103 shares of Common Stock and the
issuance of 5,000,000 shares of Common Stock, par value $0.01, to the Companys
creditors.

The Companys Common Stock was traded on the NASDAQ Small Cap Market under the
symbol VSTA from October 1999 until May 17, 2000, when it began trading on
the OTC Bulletin Board. Upon issuance of Common Stock after emergence from
bankruptcy, the Companys Common Stock was listed on the American Stock
Exchange in August of 2001 under the symbol NVI. The following table sets
forth for the periods indicated the high and low prices of the Companys Common
Stock in the various market systems as noted above.

Pre-emergence (Predecessor)

Period Ended
    
    High
    
    LowFiscal 2000
    
    April 1, 2000
    
    $
    2.500
    
    
    $
    0.844July 1, 2000
    
    $
    0.875
    
    
    $
    0.203September 30, 2000
    
    $
    0.359
    
    
    $
    0.125December 30, 2000
    
    $
    0.219
    
    
    $
    0.031Fiscal 2001
    
    March 31, 2001
    
    $
    0.200
    
    
    $
    0.030June 2, 2001
    
    $
    0.040
    
    
    $
    0.020


Post-emergence (Successor)

Period Ended
    
    High
    
    LowFiscal 2001
    
    September 29, 2001
    
    $
    5.000
    
    
    $
    0.900December 29, 2001
    
    $
    1.050
    
    
    $
    0.350


As of December 29, 2001, there were approximately 320 holders of record of the
Companys Common Stock.

The Companys plan of reorganization in the Chapter 11 Cases provides that, as
claims of creditors are resolved, the Company will make periodic distributions
of its new common stock and notes. As of March 1, 2002, the
Company has made five
such distributions, for a total of 4,190,000 shares of new common stock and
$100.9 million face amount of new notes. The balance of 810,000 shares of new
common stock and $19.1 million face amount of new notes are part of a disputed
claim reserve maintained by a third-party trustee and will be distributed as and
when disputed claims are resolved. Such distributions could have an adverse
impact on any trading price for the Companys securities.

It is the Companys intent to use cash resources only for its operations and,
ultimately, for payment of interest expense and repayment of principal on the
Companys new secured notes. The Companys bond indenture and credit facility
agreement restrict the Companys ability to pay dividends.

7



---



##### 



USE OF NON-GAAP FINANCIAL MEASURES

We frequently refer to EBITDA in this document. EBITDA is calculated as
net earnings before interest, taxes, depreciation, and amortization,
extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items
as defined in the Indenture governing our Senior Notes. We
refer to EBITDA because:



| |  |  | It is the basis for the calculation of the
excess cash flow principal repayment under our senior notes; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | It is a widely accepted financial indicator
of a companys ability to service or incur indebtedness.
| | - |  | ----------------------------------------------------------------------------------------------------

EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles (GAAP), is not necessarily indicative of cash available
to fund all cash flow needs, should not be considered an alternative to net
income or to cash flow from operations (as determined in accordance with GAAP)
and should not be considered an indication of our operating performance or as a
measure of liquidity. EBITDA is not necessarily comparable to similarly titled
measures for other companies.

ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data
of the Company for the seven months ended December 29, 2001, the
five months ended June 2, 2001, the year ended
December 30, 2000, January 1, 2000, January 2, 1999 and January 3, 1998, are
derived from the Companys Consolidated Financial Statements. The Company
emerged from Chapter 11 on May 31, 2001 and implemented fresh start
accounting as of June 2, 2001. Results of operations for the 3-day period from
May 31, 2001 through June 2, 2001 were not material. In accordance with fresh
start accounting, all assets and liabilities were restated to reflect their
respective fair values. The consolidated financial statements after that date
are those of a new reporting entity and are not comparable to the
pre-confirmation periods. The
selected financial data set forth below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Report.

8



---



##### 



National Vision, Inc.
Consolidated Statements of Operations
(In thousands except vision center store count)

Successor
    

    Predecessor(Restated)Seven months
    

    Five monthsEnded
    

    EndedDecember 29,
    

    June 2,2001
    

    2001
    
    2000
    
    1999
    
    1998
    
    1997(1)(2)(3)
    

    (1)(2)(3)(7)
    

(1)(6)(8)(9)
    
    (1)(5)(8)
    
    (1)
    
    (1)(4)Net sales
    
    $
    135,543
    
    

    $
    120,557
    
    
    $
    307,694
    
    
    $
    329,055
    
    
    $
    245,331
    
    
    $
    186,354Cost of goods sold
    
    
    61,488
    
    

    
    57,404
    
    
    
    143,458
    
    
    
    147,768
    
    
    
    112,929
    
    
    
    86,363Gross profit
    
    
    74,055
    
    

    
    63,153
    
    
    
    164,236
    
    
    
    181,287
    
    
    
    132,402
    
    
    
    99,991Gross profit percentage
    
    
    54.6
    %
    

    
    52.4
    %
    
    
    53.4
    %
    
    
    55.1
    %
    
    
    54.0
    %
    
    
    53.7
    %Selling, general & administrative expense
    
    
    71,526
    
    

    
    68,377
    
    
    
    166,364
    
    
    
    177,162
    
    
    
    121,413
    
    
    
    89,156Impairment of long-lived assets
    
    
    
    
    

    
    
    
    
    
    2,684
    
    
    
    1,952
    
    
    
    
    
    
    
    Restructuring expense
    
    
    
    
    

    
    
    
    
    
    1,601
    
    
    
    
    
    
    
    
    
    
    
    Operating income/(loss)
    
    
    2,529
    
    

    
    (5,224
    )
    
    
    (6,413
    )
    
    
    2,173
    
    
    
    10,989
    
    
    
    10,835Interest expense, net
    
    
    8,389
    
    

    
    1,150
    
    
    
    7,723
    
    
    
    19,329
    
    
    
    5,538
    
    
    
    1,554Earnings/(loss) before reorganization items and taxes
    
    
    (5,860
    )
    

    
    (6,374
    )
    
    
    (14,136
    )
    
    
    (17,156
    )
    
    
    5,451
    
    
    
    9,281Reorganization expense/(gain)
    
    
    
    
    

    
    (102,515
    )
    
    
    121,539
    
    
    
    
    
    
    
    
    
    
    
    Earnings/(loss) before taxes, extraordinary items and
cumulative effect of a change in accounting principle
    
    
    (5,860
    )
    

    
    96,141
    
    
    
    (135,675
    )
    
    
    (17,156
    )
    
    
    5,451
    
    
    
    9,281Income tax expense
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    2,037
    
    
    
    3,708Earnings/(loss) before extraordinary items and
cumulative effect of a change in accounting principle
    
    
    (5,860
    )
    

    
    96,141
    
    
    
    (135,675
    )
    
    
    (17,156
    )
    
    
    3,414
    
    
    
    5,573Extraordinary gain/(loss), net
    
    
    
    
    

    
    17,182
    
    
    
    (827
    )
    
    
    (406
    )
    
    
    
    
    
    
    Cumulative
effect, net
    
    
    
    
    

    
    
    
    
    
    (3,378
    )
    
    
    
    
    
    
    
    
    
    
    Net earnings/(loss)
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )
    
    $
    (17,562
    )
    
    $
    3,414
    
    
    $
    5,573BALANCE SHEET DATA:Total assets
    
    $
    171,217
    
    

    $
    186,688
    
    
    $
    90,888
    
    
    $
    220,219
    
    
    $
    229,097
    
    
    $
    83,250Current and long-term obligations
    
    $
    120,000
    
    

    $
    123,000
    
    
    $
    183,735
    
    
    $
    151,902
    
    
    $
    139,608
    
    
    $
    24,973Shareholders equity/(deficit)
    
    $
    19,274
    
    

    $
    25,000
    
    
    $
    (113,323
    )
    
    $
    26,557
    
    
    $
    43,927
    
    
    $
    35,598STATISTICAL DATA:Domestic vision centers open at end of period:Leased department vision centers
    
    
    479
    
    

    
    473
    
    
    
    472
    
    
    
    577
    
    
    
    562
    
    
    
    364Freestanding vision centers
    
    
    
    
    

    
    
    
    
    
    226
    
    
    
    322
    
    
    
    331
    
    
    
    50Average annual sales per Wal-Mart leased
department vision center (10)
    
    $
    535
    
    

    $
    535
    
    
    $
    540
    
    
    $
    527
    
    
    $
    522
    
    
    $
    522Average annual sales per other host leased
department vision center (10)
    
    $
    245
    
    

    $
    245
    
    
    $
    248
    
    
    $
    242
    
    
    $
    176
    
    
    $
    146Average annual rent per Wal-Mart leased
department vision center (10)
    
    $
    71
    
    

    $
    71
    
    
    $
    68
    
    
    $
    66
    
    
    $
    63
    
    
    $
    64Wal-Mart leased department vision centers
converted to supercenters
    
    
    7
    
    

    
    4
    
    
    
    13
    
    
    
    5
    
    
    
    5
    
    
    
    2Capital expenditures
    
    $
    2,750
    
    

    $
    2,084
    
    
    $
    5,379
    
    
    $
    12,704
    
    
    $
    9,183
    
    
    $
    8,049Depreciation and amortization
    
    $
    11,425
    
    

    $
    4,808
    
    
    $
    17,526
    
    
    $
    18,602
    
    
    $
    14,177
    
    
    $
    11,035EBITDA (11)
    
    $
    13,954
    
    

    $
    (416
    )
    
    $
    11,113
    
    
    $
    20,775
    
    
    $
    25,166
    
    
    $
    21,870


9



---



##### 





|(1)  |  | Financial information for all years presented includes results of international operations for the 12 months ended November 30.
(See Note 2 to Consolidated Financial Statements.)                                                                                                                                                                                                                                                                                                                    
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | The 2001 results have been
restated. (See Note 17 to the Consolidated Financial Statements.)                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(3)  |  | The Company emerged from Chapter 11 on May 31, 2001 and implemented fresh start accounting as of June 2, 2001. Results of operations for the 3 day period from May 31,
2001 through June 2, 2001 were not material. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair
values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the periods prior to emergence.
|    
|(4)  |  | The Company uses a 52/53 week
retail calendar. (See Note 2 to Consolidated Financial Statements). Fiscal 1997 consisted of 53 weeks ended January 3, 1998. Sales for
the 53rd week approximated $3.0 million in fiscal 1997.                                                                                                                                                                                                                                                                          
|    
|(5)  |  | In 1999, the Company recorded a $2.7 million provision for the write-off of certain receivables and an impairment of $1.9 million in connection with 36 under-performing
vision centers. The receivables provision was included in SG&A expense.                                                                                                                                                                                                                                                      
|    
|(6)  |  | In 2000, the Company recorded an impairment provision for inventory and receivables at the freestanding locations totaling $1.1 million and $518,000, respectively.
These items were included in cost of goods sold and selling, general
and administrative expense, as appropriate.                                                                                                                                                                                                                  
|    
|(7)  |  | In 2001, the Predecessor Company recorded a $6.3 million provision for uncollectable receivables. Of this amount $2.9 million related to the ongoing host business.
This expense was included in selling, general
and administrative expense. In addition, the Predecessor
Company recorded a $2.4 million provision for inventory. This expense
was included in cost of goods sold.                                                                                                                  
|    
|(8)  |  | The Company incurred expenses for
the impairment of certain long-lived assets and store closing costs
prior to the Companys filing of Chapter 11 in April 2000.                                                                                                                                                                                                                                                                                                                                      
|    
|(9)  |  | This represents the cumulative
effect of a change in accounting principle for the adoption of SAB
101. (See Note 2 to the Consolidated Financial Statements).                                                                                                                                                                                                                                                                                                                                         
|    
|(10) |  | For the purposes of calculating average annual sales and average annual rent, the Successor results for the seven months ended December 29, 2001 have been combined with
the Predecessor results for the five months ended June 2, 2001                                                                                                                                                                                                                                                               
|    
|(11) |  | EBITDA is calculated as net
earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items. (See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Use of Non-GAAP Financial Measures). The
following is a reconciliation of net earnings to EBITDA (amounts in thousands):                                                                             

(Successor)
    



(Predecessor)Seven months
    

    Five monthsEndedDecember 29,2001
    


EndedJune 2,2001
    
    2000
    
    1999
    
    1998
    
    1997Net earnings/(loss)
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )
    
    $
    (17,562
    )
    
    $
    3,414
    
    
    $
    5,573Addback:Interest expense, net
    
    
    8,389
    
    

    
    1,150
    
    
    
    7,723
    
    
    
    19,329
    
    
    
    5,538
    
    
    
    1,554Reorganization expense/(gain)
    
    
    
    
    

    
    (102,515
    )
    
    
    121,539
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    2,037
    
    
    
    3,708Extraordinary
(gain)/loss, net
    
    
    
    
    

    
    (17,182
    )
    
    
    827
    
    
    
    406
    
    
    
    
    
    
    
    Cumulative effect, net
    
    
    
    
    

    
    
    
    
    
    3,378
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    11,425
    
    

    
    4,808
    
    
    
    17,526
    
    
    
    18,602
    
    
    
    14,177
    
    
    
    11,035EBITDA
    
    $
    13,954
    
    

    $
    (416
    )
    
    $
    11,113
    
    
    $
    20,775
    
    
    $
    25,166
    
    
    $
    21,870


10



---



##### 



ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Proceedings Under Chapter 11 of the Bankruptcy Code

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was confirmed by the
bankruptcy court on May 18, 2001. On May 31, 2001, after securing a new
revolving credit facility with Fleet Capital Corporation, the Company emerged
from bankruptcy.

Under the Plan, the Companys pre-petition unsecured claims were converted into
new secured notes and common stock. The secured notes have a face value of
$120 million, will provide for the payment of interest of 12% twice a year at
the end of March and September and are subordinated to debt under the Companys
credit facility. The notes are payable over eight years with principal
repayments based on excess cash flow for the prior six month period, adjusted,
if necessary, so that the Company has at least $3 million in cash, measured
as of the end of June and December of each year, with the first measurement
date occurring at the end of 2001. The principal repayments are made by the
end of the second month subsequent to the measurement date. On February 28,
2002, the Company made its first principal redemption in the amount of $1.6
million. The Company can provide no assurance as to whether it will generate
sufficient cash to make future principal repayments or as to the amount of any
such repayments. Five million shares of new common stock, par value $0.01,
were issued, based on the Companys reorganization value. Under the Plan,
former shareholders received no value for their interests, consequently, all
common stock issued prior to emergence from bankruptcy was cancelled.

11



---



##### 



The Companys reorganization value was developed by the Company, the Official
Committee of Unsecured Creditors and their respective financial advisors. The
reorganization value was based on a calculation of the present value of the
free cash flows under the Companys financial projections, including an
assumption of a terminal value. Such projections were necessarily based on a
variety of estimates and assumptions which might not be realized and are
inherently subject to significant uncertainties and contingencies. Some
assumptions inevitably will not materialize. The projections therefore should
not be considered as a guarantee or other assurance of actual results.

The allocation of the Companys reorganization value is shown below:

Reorganized value:New Debt
    
    $
    120,000New Equity
    
    
    25,000Reorganization value
    
    $
    145,000


In the allocation of the reorganization value, the Companys tangible and
intangible assets were recorded at their assumed fair value. Intangible Value
of Contractual Rights, approximating $113.6 million, was established as part of
fresh start accounting and is being amortized over 15 years using the
straight-line method. This intangible asset represents the value of the
Companys lease agreement and the business relationship developed with
Wal-Mart. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, this intangible is an amortizable asset because it has a finite useful
life. However, the precise length of its life is subject to future change due
to various reasons, including the Wal-Mart superstore conversions that
automatically trigger extensions on the contractual life of the asset, possible
changes and/or extensions to the Master Lease Agreement as well as other
businesses that may be developed through our relationship with Wal-Mart. Based
on projections, management believes that the best estimate of the useful life
of this asset is 15 years. Due to the uncertainty involved in predicting the
pattern of economic benefits realized from the Wal-Mart relationship, this
asset is amortized using the straight-line method.

No assurances can be given as to the price at which the securities of the
Company may trade (See Market for Registrants Common Stock and Related
Stockholder Matters), and such prices may be materially different from the
reorganization value prepared in connection with the Plan.

Restatement

Subsequent to the issuance of the Companys 2001 financial statements, the
Companys management determined that the following revisions to the 2001
financial statements were required:




| |  |  |  |  |  |  |  |  | 1) | Reclassification of the balance sheet
to reflect a current deferred income tax asset
and a non-current net deferred income tax liability as of December 29, 2001, and
restatement of the 2001 income tax footnote (See Note 11 to the
Consolidated Financial Statements) which details the
Companys deferred tax assets and liabilities to correctly reflect the deferred
income tax assets, liabilities, and valuation allowance of the Company as of
December 29, 2001, due mainly to 1) an unrecorded deferred
income tax asset for net operating
loss carryforwards resulting from the disposition of the Companys
free-standing store locations, and 2) an unrecorded deferred income tax liability for
the intangible value of contractual rights recorded upon fresh start
accounting.
| |  |  |  |  |  |  |  |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  |  |  |  |  |  |  | 2) | Reclassification of the balance sheet presentation for senior notes to reflect
a short-term senior note liability as of December 29, 2001 for a senior note
principal payment due in February 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  |  |  |  |  |  |  | 3) | Reclassification of certain reserves for equipment and other assets from
accrued expenses and other current liabilities to accounts receivable, property
and equipment, and other assets and deferred costs as of
December 29, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  |  |  |  |  |  |  | 4) | Reclassification of certain non-reorganization expenses, which were previously
presented as reorganization expenses, in the five month Predecessor period
ended June 2, 2001, to cost of goods sold, and selling, general & administrative
expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The consolidated financial statements for the year ended December 29, 2001
contained herein have been restated to reflect all of these adjustments and
reclassifications.

A summary of the significant effects
of the restatements is as follows:

As PreviouslyReported*
    
    As RestatedAt December 29, 2001:Accounts receivable
    
    
    3,939
    
    
    
    3,908Other current assets
    
    
    636
    
    
    
    583Equipment
    
    
    17,731
    
    
    
    17,049Net property and equipment
    
    
    24,682
    
    
    
    24,000Other assets and deferred costs
    
    
    1,561
    
    
    
    1,332Deferred tax asset  current
    
    
    
    
    
    
    3,681Deferred tax asset  long term
    
    
    385
    
    
    
    Total
Assets
    
    
    168,916
    
    
    
    171,217Accrued expenses and other current liabilities
    
    
    25,707
    
    
    
    24,712Current portion of other long-term debt
    
    
    
    
    
    
    1,597Senior notes
    
    
    120,000
    
    
    
    118,403Deferred tax liability  long term
    
    
    
    
    
    
    3,296Liabilities
and Shareholders Equity
    
    
    168,916
    
    
    
    171,217


12



---



##### 



As PreviouslyReported*
    
    As RestatedFor the five months ended June 2, 2001:Cost of goods sold
    
    
    54,761
    
    
    
    57,404Selling, general and administrative expense
    
    
    64,977
    
    
    
    68,377Operating income/(loss)
    
    
    819
    
    
    
    (5,224
    )Loss before reorganization items and taxes
    
    
    (331
    )
    
    
    (6,374
    )Reorganization expenses (gain)
    
    
    (96,472
    )
    
    
    (102,515
    )


These restatement adjustments have no effect on the previously reported net
loss for the seven months ended December 29, 2001 or the previously reported net
income for the five months ended June 2, 2001.

*Includes certain reclassification adjustments made to the previously reported
amounts, which are unrelated to the restatement.

Results Of Operations

The Company emerged from Chapter 11 on May 31, 2001 and implemented fresh
start accounting as of June 2, 2001. Results of operations for the 3 day
period from May 31, 2001 through June 2, 2001 were not material. In accordance
with fresh start accounting, all assets and liabilities were restated to
reflect their respective fair values. The consolidated financial statements
after that date are those of a new reporting entity and are not comparable to
the periods prior to emergence. However, for purposes of this discussion, the
Successor results for the seven months ended December 29, 2001 have been
combined with the Predecessor results for the five months ended June 2, 2001 and
then compared to the Predecessor results for the fiscal year ended December 30,
2000. Differences between periods due to fresh start accounting are explained
when necessary. Results for these periods are summarized in the following
tables:

13



---



##### 



National Vision, Inc.
Consolidated Statements of Operations
(In thousands)

Fiscal Year
    
    Fiscal YearEnded
    
    EndedDecember 29,
    
    December 30,2001 (A)
    
    2000Net sales
    
    $
    256,100
    
    
    $
    307,694Cost of goods sold
    
    
    118,892
    
    
    
    143,458Gross profit
    
    
    137,208
    
    
    
    164,236Selling, general & administrative expense
    
    
    139,903
    
    
    
    166,364Impairment of long-lived assets
    
    
    
    
    
    
    2,684Restructuring expense
    
    
    
    
    
    
    1,601Loss before reorganization items and taxes
    
    
    (2,695
    )
    
    
    (6,413
    )Interest expense, net
    
    
    9,539
    
    
    
    7,723Loss before reorganization items and taxes
    
    
    (12,234
    )
    
    
    (14,136
    )Reorganization expense/(gain)
    
    
    (102,515
    )
    
    
    121,539Earnings/(loss) before taxes, extraordinary item and cumulative effect
    
    
    90,281
    
    
    
    (135,675
    )Income tax expense
    
    
    
    
    
    
    Net earnings/(loss) before extraordinary item and cumulative effect
    
    
    90,281
    
    
    
    (135,675
    )Extraordinary gain/(loss), net
    
    
    17,182
    
    
    
    (827
    )Cumulative effect, net
    
    
    
    
    
    
    (3,378
    )Net earnings/(loss)
    
    $
    107,463
    
    
    $
    (139,880
    )




| | (A) |  | Represents the combined results of the Successor for the seven
months ended December 29, 2001 and the results of the Predecessor for
the five months ended June 2, 2001.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys results of operations in any period are significantly affected by
the number and mix of vision centers opened and operating during the period.
At December 29, 2001, the Company operated 514 vision centers, versus 725
vision centers at December 30, 2000, summarized as follows:

December 29, 2001
    
    December 30, 2000Wal-Mart vision centers in US
    
    
    400
    
    
    
    397Wal-Mart vision centers in Mexico
    
    
    35
    
    
    
    27Fred Meyer vision centers
    
    
    55
    
    
    
    56Military base vision centers
    
    
    24
    
    
    
    19Freestanding stores
    
    
    
    
    
    
    226514
    
    
    
    725


14



---



##### 



YEAR ENDED DECEMBER 29, 2001 COMPARED TO YEAR ENDED DECEMBER 30, 2000

Net Sales. The Company recorded net sales of $256.1 million in fiscal 2001, a
decrease of 16.8% from sales of $307.7 million in fiscal 2000. Sales decreased
due to the following reasons:



| |  |  | In April 2001, the Company disposed of the remainder of its
freestanding stores. These stores had sales of approximately $61
million in 2000 versus sales of $18 million in 2001.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company closed all of its Sams Club operations in the third
quarter of 2000. These locations had sales of approximately $12 million
in fiscal 2000.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

Comparable store sales in the Companys Wal-Mart business declined 0.5% from
levels recorded in the prior fiscal year. This decrease was partially offset
by sales from 5 new stores opened in 2001.

Gross Profit.In the Current Year, gross profit decreased to $137.2 million
from $164.2 million in the prior year. This decrease in gross profit was
primarily driven by a reduction in sales caused by the closure of the
freestanding locations and the Sams Club locations. Gross margin, as a
percent of sales, increased to 53.6% from 53.4% in the Prior Year. Gross
margin percentage was positively impacted by an increase in eyeglass margins,
resulting from the introduction and repositioning of certain eyeglass lens
items and additional price-point options placed on the frame boards. Also, the
Company recorded a charge of approximately $2.6 million and $1.1 million to
adjust inventory of the freestanding locations to its net realizable value in
the Current Year and in the Prior Year, respectively.

The current year improvement was partially offset by increases in rent expense
(which is a component of gross profit) as a percent of sales for the Wal-Mart
division. This was due to approximately 46 vision centers entering the
three-year option period of the Wal-Mart lease since the end of the Prior Year.
The option period effectively increases each locations minimum rent
requirement. We expect this trend of increased rent to continue as additional
Wal-Mart locations enter the option period of their lease. The Company believes
that, on the basis of comparable store sales growth it has historically
achieved over the five year period prior to 2001, occupancy expense under the
Wal-Mart agreement as a percent of sales should not, in the foreseeable future,
increase by more than one percentage point over levels recorded in 2001. During
2001, the Companys effective rent percentage on the Wal-Mart store revenues
was approximately 13.5%. The Company cannot give any assurances that it will
be able to continue to record comparable sales increases at these historical
levels. Any significant shortfall in comparable store sales would have a
negative impact on occupancy expense as a percent of sales.

Selling, General, And Administrative Expense(SG&A expense). SG&A expense
(which includes both store operating expenses and home office overhead)
decreased to $139.9 million in the Current Year from $166.4 million for the
Prior Year. The dollar decrease was primarily the result of lower payroll,
depreciation and other expenses due to the above-mentioned store dispositions
and closures. However, SG&A expense increased as a percent of sales from 54.1%
in the Prior Year to 54.6% in the Current Year.

The percentage increase in SG&A was the result of



| |  |  | the amortization of the newly established intangible value of
contractual rights of approximately $4.4 million for the seven months
ended December 29, 2001;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $6.3 million charge for uncollectible managed care receivables in
the Predecessor Company ($2.9 million of which related to ongoing
businesses);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in freestanding healthcare costs of approximately $1.0
million; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | an increase in third party processing costs as a result of increased
managed care sales and receipts. Third party processing costs as a
percentage of sales are expected to increase as sales under managed care
programs increase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The percentage increase in SG&A
was partially offset by



| |  |  | a 1.7% decrease in retail and field supervision payroll costs as a
percent of sales primarily due to the closure of the freestanding stores
that had higher payroll costs as a percent of sales;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a charge of approximately $0.5 million in the Prior Year to adjust
accounts receivable in the Companys freestanding stores to net
realizable value; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a reduction in total advertising expenditures in the Current Year due
to the disposal of the Companys freestanding locations. Historically
the Companys advertising expenditures for the freestanding locations
have been in excess of 10% of sales, well in excess of expenditures as a
percentage of sales for the domestic host businesses. Advertising for
the Companys domestic host businesses in 2001 is up slightly from
historical levels.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Impairment Loss and Restructuring Expense. In the first quarter of 2000, the
Company recorded a non-cash pre-tax charge of approximately $2.7 million,
primarily related to the impairment of leasehold improvements and furniture and
fixtures of 91 stores which were closed prior to the Companys Chapter 11
filing. Also, the Company recorded a $1.6 million reserve for anticipated
closing costs which was comprised of $1.4 million of lease termination costs
and $0.2 million of severance and other closing costs.

15



---



##### 



Operating Loss. The operating loss for the Current Year was $2.7 million
compared to a loss of $6.4 million in the Prior Year. Operating loss as a
percentage of sales prior to the restructuring reserve and the impairment loss
was 1.1% in the Current Year, compared to a loss of 0.7% in the Prior Year.
This improvement was primarily due to the closure of the freestanding locations
and the Sams Club locations.

Interest Expense. Interest expense increased to $9.5 million compared to $7.7
million in the Prior Year. In the Prior Year, the Company stopped accruing
interest on unsecured debt. The Company emerged from bankruptcy on May 31,
2001, and new senior notes in the amount of $120 million, bearing interest of
12%, were issued and the previous notes were cancelled. The new notes were
outstanding for seven months in the current period and interest of
approximately $8.4 million was accrued. Contractual interest for the Prior
Year was $20.7 million.

Reorganization Items. The Company recorded all transactions incurred as a
result of the Chapter 11 filing separately as reorganization items. There were
no reorganization items recorded after June 2, 2001, as the Company emerged
from bankruptcy. The table below summarizes the items incurred by the
Predecessor Company (amounts in thousands):

Five Months
    
    Twelve MonthsEnded
    
    EndedJune 2, 2001
    
    December 30, 2000Fresh start adjustments (a)
    
    $
    (114,263
    )
    
    $
    Impairment of goodwill
    
    
    
    
    
    
    100,805Impairment of fixed assets
    
    
    33
    
    
    
    12,000Provision for rejected leases
    
    
    1,592
    
    
    
    1,920Loss on disposal of freestanding division
    
    
    3,645
    
    
    
    Other store closing costs
    
    
    532
    
    
    
    670Retention plan
    
    
    3,231
    
    
    
    2,173Professional fees
    
    
    2,008
    
    
    
    3,421Letter of credit reserve on DIP Facility
    
    
    197
    
    
    
    Interest income on accumulated cash
    
    
    (127
    )
    
    
    (144
    )Other reorganization costs
    
    
    637
    
    
    
    694Reorganization (gain)/expense
    
    $
    (102,515
    )
    
    $
    121,539




| | (a) |  | The adjustments represent the elimination of
Predecessor Company equity and the fair value
adjustments that were made as part of fresh-start
accounting.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

Benefit For Income Taxes.The Company recorded pre-tax operating income in the
Current Year due primarily to the fresh start adjustments. The Company
reflected no tax expense as this income is not taxable. The Company generated
operating losses for tax purposes in 2001. No income tax benefit has been
recorded as realization is considered unlikely.

Extraordinary Items. In 2001, as part of the Companys emergence from
bankruptcy, the Predecessor Company recognized an extraordinary gain of $17.2
million related to the extinguishment of debt. The gain was calculated as
follows:

Net liabilities subject to compromise
    
    $
    169,245Deferred financing costs related to
cancelled senior notes
    
    
    (7,063
    )Net liabilities extinguished
    
    
    162,182Less: Reorganized value
    
    
    145,000Gain on extinguishment of debt
    
    $
    17,182


The 2000 results also include an extraordinary loss of $827,000 associated with
the write-off of the capitalized costs of the Companys previous Foothill
credit facility.

Net Income/(loss).The Company posted net income of $107.5 million in the
Current Year versus a net loss of $139.9 million in the Prior Year. Of the
2001 net income of $107.5 million, $102.5 million results from a reorganization
gain, as noted above.

EBITDA. EBITDA is calculated as
net earnings before interest, taxes, depreciation and amortization,
extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items. EBITDA increased in the Current Year due to the
disposal of the freestanding operations in April 2001. (See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Use of Non-GAAP Financial Measures.)

16



---



##### 



The following is a reconciliation of
net earnings to EBITDA (amounts in
thousands):

2001
    
    2000Net earnings/(loss)
    
    $
    107,463
    
    
    $
    (139,880
    )Addback:Interest expense, net
    
    
    9,539
    
    
    
    7,723Reorganization expense/(gain)
    
    
    (102,515
    )
    
    
    121,539Income tax expense
    
    
    
    
    
    
    Extraordinary
(gain)/loss, net
    
    
    (17,182
    )
    
    
    827Cumulative effect, net
    
    
    
    
    
    
    3,378Depreciation and amortization
    
    
    16,233
    
    
    
    17,526EBITDA
    
    $
    13,538
    
    
    $
    11,113


HISTORICAL PRO FORMA RESULTS OF ONGOING OPERATIONS.

On April 20, 2001, the Predecessor Company completed the sale of its
freestanding retail operations to Vista Acquisition LLC (the Buyer). We
received consideration of approximately $7.0 million, consisting of $5.7
million in cash and a $1.3 million note receivable. The note receivable was
fully reserved at the time of the sale, due to the low probability of
collection. The assets sold consisted primarily of furniture, fixtures and
inventory at approximately 200 freestanding locations and inventory and
equipment at the Fullerton, California laboratory/distribution
center. In a related transaction, the Company
agreed to sell, subject to regulatory approval, to the Buyer its interest
in a managed care subsidiary. The net book value of the assets of the
subsidiary ($1.1 million) was fully reserved upon the agreement
date as
the Buyer took possession of these assets, however, the Company received no
consideration from the Buyer for these assets and future receipt was
uncertain. For purposes of the unaudited
pro forma financial information presented below, these transactions have been
combined.

The following information presents the Companys results of operations for the
retail store operations retained by the Company upon emergence from bankruptcy
in June 2001. In addition to the exclusion of the freestanding store financial
results, the pro forma information also excludes the financial results of other
dispositions that occurred during the bankruptcy process, including the Sams
Club stores and the Meijer Thrifty Acres stores. Accordingly, data for the
first and second quarter of 2001 and for all quarters of 2000 is presented on a
pro forma basis as if all disposed operations were closed or disposed of as of
the beginning of 2000. The pro
forma information does not necessarily reflect actual results that would have
occurred nor is it necessarily indicative of future results of operations of
the Company without the closed or disposed operations. Costs related to the bankruptcy, reorganization and
restructuring costs are excluded.

2001

Pro Forma
    
    Pro Forma
    
    
    
    
    
    
    
    
    
    Pro FormaFirst
    
    Second
    
    Third
    
    Fourth
    
    FiscalQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    2001Store count at end of period
    
    
    502
    
    
    
    503
    
    
    
    505
    
    
    
    514
    
    
    
    514Domestic comparable store sales growth
    
    
    -0.5
    %
    
    
    0.5
    %
    
    
    0.0
    %
    
    
    -0.5
    %
    
    
    0.0
    %Net sales
    
    $
    60,906
    
    
    $
    60,042
    
    
    $
    59,741
    
    
    $
    57,196
    
    
    $
    237,885Gross profit
    
    $
    33,357
    
    
    $
    33,699
    
    
    $
    33,644
    
    
    $
    30,100
    
    
    $
    130,800Operating income
    
    $
    4,428
    
    
    $
    789
    
    
    $
    2,204
    
    
    $
    (48
    )
    
    $
    7,374Net
earnings/(loss)
    
    $
    3,689
    
    
    $
    (731
    )
    
    $
    (1,469
    )
    
    $
    (3,655
    )
    
    $
    (2,165
    )Capital expenditures
    
    $
    1,200
    
    
    $
    1,100
    
    
    $
    970
    
    
    $
    1,445
    
    
    $
    4,715Depreciation and amortization
    
    $
    2,817
    
    
    $
    3,443
    
    
    $
    4,979
    
    
    $
    4,910
    
    
    $
    16,149


2000

Pro Forma
    
    Pro Forma
    
    Pro Forma
    
    Pro Forma
    
    Pro FormaFirst
    
    Second
    
    Third
    
    Fourth
    
    FiscalQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    2000Store count at end of period
    
    
    490
    
    
    
    491
    
    
    
    494
    
    
    
    499
    
    
    
    499Domestic comparable store sales growth
    
    
    5.0
    %
    
    
    1.5
    %
    
    
    0.0
    %
    
    
    0.5
    %
    
    
    2.0
    %Net sales
    
    $
    59,727
    
    
    $
    59,038
    
    
    $
    58,781
    
    
    $
    56,902
    
    
    $
    234,449Gross profit
    
    $
    33,729
    
    
    $
    32,229
    
    
    $
    31,990
    
    
    $
    29,653
    
    
    $
    127,600Operating income
    
    $
    5,680
    
    
    $
    4,411
    
    
    $
    4,350
    
    
    $
    2,815
    
    
    $
    17,255Net
earnings/(loss)
    
    $
    350
    
    
    $
    3,494
    
    
    $
    3,629
    
    
    $
    2,060
    
    
    $
    9,532Capital expenditures
    
    $
    2,100
    
    
    $
    700
    
    
    $
    900
    
    
    $
    800
    
    
    $
    4,500Depreciation and amortization
    
    $
    2,819
    
    
    $
    2,817
    
    
    $
    3,110
    
    
    $
    2,642
    
    
    $
    11,389


Reconciliation to Pro Forma Results

A reconciliation of the quarterly
results for 2000 and 2001 from reported results to pro forma results
is presented in the following tables (amounts in thousands):

|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------- |  | --------- | ------ | --- |  | - | ------ | 
|                                                                                                                                   |  | Three
Months Ended
|                                                                                                                                   |  | March 31, 2001    
|                                                                                                                                   |  |                   
|                                                                                                                                   |  | As Reported        |        | Adjustments |  | Pro Forma
|                                                                                                                                   |  |                    |        |             |  |          
|Net sales                                                                                                                          |  | $                  | 74,735 |             |  | $         | 13,829 | (D) |  | $ | 60,906 | 
|Cost of goods sold                                                                                                                 |  |                    | 34,525 |             |  |           | 6,976  | (D) |  |   | 27,549 | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Gross profit                                                                                                                       |  |                    | 40,210 |             |  |           | 6,853  |     |  |   | 33,357 | 
|Selling, general & administrative                                                                                                  |  |                    | 39,071 |             |  |           | 10,142 | (D) |  |   | 28,929 | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Operating income / (loss)                                                                                                          |  |                    | 1,139  |             |  |           | (3,289 | )   |  |   | 4,428  | 
|Interest expense, net                                                                                                              |  |                    | 739    |             |  |           |       |     |  |   | 739    | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Earnings
/ (loss) before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | 400    |             |  |           | (3,289 | )   |  |   | 3,689  | 
|Reorganization expense / (gain)                                                                                                    |  |                    | 1,789  |             |  |           | 1,789  | (G) |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Earnings
/ (loss) before taxes, extraordinary item and
cumulative effect of a change in accounting principle                       |  |                    | (1,389 | )           |  |           | (5,078 | )   |  |   | 3,689  | 
|Income taxes                                                                                                                       |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle                          |  |                    | (1,389 | )           |  |           | (5,078 | )   |  |   | 3,689  | 
|Extraordinary (loss) / gain, net                                                                                                   |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss)                                                                                                              |  | $                  | (1,389 | )           |  | $         | (5,078 | )   |  | $ | 3,689  | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 

|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------- |  | --------- | -------- | ----- |  | - | ------ | -
|                                                                                                                      |  | Three
Months Ended
|                                                                                                                      |  | June 30, 2001     
|                                                                                                                      |  |                   
|                                                                                                                      |  | As Reported (A)    |          | Adjustments |  | Pro Forma
|                                                                                                                      |  |                    |          |             |  |          
|Net sales                                                                                                             |  | $                  | 64,428   |             |  | $         | 4,386    | (D)   |  | $ | 60,042 |  
|Cost of goods sold (B)                                                                                                |  |                    | 31,174   |             |  |           | 4,831    | (D)   |  |   | 26,343 |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Gross profit                                                                                                          |  |                    | 33,254   |             |  |           | (445     | )     |  |   | 33,699 |  
|Selling, general & administrative (C)                                                                                 |  |                    | 39,244   |             |  |           | 6,334    | (D)   |  |   | 32,910 |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Operating income / (loss)                                                                                             |  |                    | (5,990   | )           |  |           | (6,779   | )     |  |   | 789    |  
|Interest expense, net                                                                                                 |  |                    | 1,520    |             |  |           |         |       |  |   | 1,520  |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Loss before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | (7,510   | )           |  |           | (6,779   | )     |  |   | (731   | )
|Reorganization expense / (gain)                                                                                       |  |                    | (104,304 | )           |  |           | (104,304 | ) (G) |  |   |       |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Earnings
/ (loss) before taxes, extraordinary item and
cumulative effect of a change in accounting principle          |  |                    | 96,794   |             |  |           | 97,525   |       |  |   | (731   | )
|Income taxes                                                                                                          |  |                    |         |             |  |           |         |       |  |   |       |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle             |  |                    | 96,794   |             |  |           | 97,525   |       |  |   | (731   | )
|Extraordinary (loss) / gain, net                                                                                      |  |                    | 17,182   |             |  |           |         |       |  |   |       |  
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  
|Net earnings / (loss)                                                                                                 |  | $                  | 113,976  |             |  | $         | 114,707  |       |  | $ | (731   | )
|                                                                                                                      |  |                    |          |             |  |           |          |       |  |   |        |  

|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------- |  | --------- | ------- | --- |  | - | ------ | 
|                                                                                                                                   |  | Three
Months Ended
|                                                                                                                                   |  | April 1, 2000     
|                                                                                                                                   |  |                   
|                                                                                                                                   |  | As Reported        |         | Adjustments |  | Pro Forma
|                                                                                                                                   |  |                    |         |             |  |          
|Net sales                                                                                                                          |  | $                  | 83,180  |             |  | $         | 23,453  | (D) |  | $ | 59,727 | 
|Cost of goods sold                                                                                                                 |  |                    | 36,745  |             |  |           | 10,747  | (D) |  |   | 25,998 | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Gross profit                                                                                                                       |  |                    | 46,435  |             |  |           | 12,706  |     |  |   | 33,729 | 
|Selling, general & administrative                                                                                                  |  |                    | 45,759  |             |  |           | 17,710  | (D) |  |   | 28,049 | 
|Impairment of long-lived assets                                                                                                    |  |                    | 2,684   |             |  |           | 2,684   | (E) |  |   |       | 
|Restructuring expense                                                                                                              |  |                    | 1,601   |             |  |           | 1,601   | (F) |  |   |       | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Operating income / (loss)                                                                                                          |  |                    | (3,609  | )           |  |           | (9,289  | )   |  |   | 5,680  | 
|Interest expense, net                                                                                                              |  |                    | 5,330   |             |  |           |        |     |  |   | 5,330  | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Earnings
/ (loss) before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | (8,939  | )           |  |           | (9,289  | )   |  |   | 350    | 
|Reorganization expense / (gain)                                                                                                    |  |                    |        |             |  |           |        |     |  |   |       | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Earnings
/ (loss) before taxes, extraordinary item and
cumulative effect of a change in accounting principle                       |  |                    | (8,939  | )           |  |           | (9,289  | )   |  |   | 350    | 
|Income taxes                                                                                                                       |  |                    |        |             |  |           |        |     |  |   |       | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle                          |  |                    | (8,939  | )           |  |           | (9,289  | )   |  |   | 350    | 
|Extraordinary (loss) / gain, net                                                                                                   |  |                    |        |             |  |           |        |     |  |   |       | 
|Cumulative effect of a change in accounting principle                                                                              |  |                    | (3,378  | )           |  |           | (3,378) | (H) |  |   |       | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 
|Net earnings / (loss)                                                                                                              |  | $                  | (12,317 | )           |  | $         | (12,667 | )   |  | $ | 350    | 
|                                                                                                                                   |  |                    |         |             |  |           |         |     |  |   |        | 

|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------- |  | --------- | ------ | --- |  | - | ------ | 
|                                                                                                                      |  | Three
Months Ended
|                                                                                                                      |  | July 1, 2000      
|                                                                                                                      |  |                   
|                                                                                                                      |  | As Reported        |        | Adjustments |  | Pro Forma
|                                                                                                                      |  |                    |        |             |  |          
|Net sales                                                                                                             |  | $                  | 78,783 |             |  | $         | 19,745 | (D) |  | $ | 59,038 | 
|Cost of goods sold                                                                                                    |  |                    | 36,287 |             |  |           | 9,478  | (D) |  |   | 26,809 | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|Gross profit                                                                                                          |  |                    | 42,496 |             |  |           | 10,267 |     |  |   | 32,229 | 
|Selling, general & administrative                                                                                     |  |                    | 42,424 |             |  |           | 14,606 | (D) |  |   | 27,818 | 
|Impairment of long-lived assets                                                                                       |  |                    |       |             |  |           |       |     |  |   |       | 
|Restructuring expense                                                                                                 |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|Operating income / (loss)                                                                                             |  |                    | 72     |             |  |           | (4,339 | )   |  |   | 4,411  | 
|Interest expense, net                                                                                                 |  |                    | 917    |             |  |           |       |     |  |   | 917    | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|Loss before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | (845   | )           |  |           | (4,339 | )   |  |   | 3,494  | 
|Reorganization expense / (gain)                                                                                       |  |                    | 4,379  |             |  |           | 4,379  | (G) |  |   |       | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|(Loss) / earnings before taxes, extraordinary item and
cumulative effect of a change in accounting principle          |  |                    | (5,224 | )           |  |           | (8,718 | )   |  |   | 3,494  | 
|Income taxes                                                                                                          |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle             |  |                    | (5,224 | )           |  |           | (8,718 | )   |  |   | 3,494  | 
|Extraordinary (loss) / gain, net                                                                                      |  |                    | (827   | )           |  |           | (827)  | (G) |  |   |       | 
|Cumulative effect of a change in accounting principle                                                                 |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss)                                                                                                 |  | $                  | (6,051 | )           |  | $         | (9,545 | )   |  | $ | 3,494  | 
|                                                                                                                      |  |                    |        |             |  |           |        |     |  |   |        | 

|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------- |  | --------- | -------- | --- |  | - | ------ | 
|                                                                                                                      |  | Three
Months Ended
|                                                                                                                      |  | September 30, 2000
|                                                                                                                      |  |                   
|                                                                                                                      |  | As Reported        |          | Adjustments |  | Pro Forma
|                                                                                                                      |  |                    |          |             |  |          
|Net sales                                                                                                             |  | $                  | 75,578   |             |  | $         | 16,797   | (D) |  | $ | 58,781 | 
|Cost of goods sold                                                                                                    |  |                    | 36,338   |             |  |           | 9,547    | (D) |  |   | 26,791 | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|Gross profit                                                                                                          |  |                    | 39,240   |             |  |           | 7,250    |     |  |   | 31,990 | 
|Selling, general & administrative                                                                                     |  |                    | 41,646   |             |  |           | 14,006   | (D) |  |   | 27,640 | 
|Impairment of long-lived assets                                                                                       |  |                    |         |             |  |           |         |     |  |   |       | 
|Restructuring expense                                                                                                 |  |                    |         |             |  |           |         |     |  |   |       | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|Operating income / (loss)                                                                                             |  |                    | (2,406   | )           |  |           | (6,756   | )   |  |   | 4,350  | 
|Interest expense, net                                                                                                 |  |                    | 721      |             |  |           |         |     |  |   | 721    | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|Loss before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | (3,127   | )           |  |           | (6,756   | )   |  |   | 3,629  | 
|Reorganization expense / (gain)                                                                                       |  |                    | 114,521  |             |  |           | 114,521  | (G) |  |   |       | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|(Loss) / earnings before taxes, extraordinary item and
cumulative effect of a change in accounting principle          |  |                    | (117,648 | )           |  |           | (121,277 | )   |  |   | 3,629  | 
|Income taxes                                                                                                          |  |                    |         |             |  |           |         |     |  |   |       | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle             |  |                    | (117,648 | )           |  |           | (121,277 | )   |  |   | 3,629  | 
|Extraordinary (loss) / gain, net                                                                                      |  |                    |         |             |  |           |         |     |  |   |       | 
|Cumulative effect of a change in accounting principle                                                                 |  |                    |         |             |  |           |         |     |  |   |       | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 
|Net earnings / (loss)                                                                                                 |  | $                  | (117,648 | )           |  | $         | (121,277 | )   |  | $ | 3,629  | 
|                                                                                                                      |  |                    |          |             |  |           |          |     |  |   |        | 

|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------- |  | --------- | ------ | --- |  | - | ------ | 
|                                                                                                                                   |  | Three
Months Ended
|                                                                                                                                   |  | December 30, 2000 
|                                                                                                                                   |  |                   
|                                                                                                                                   |  | As Reported        |        | Adjustments |  | Pro Forma
|                                                                                                                                   |  |                    |        |             |  |          
|Net Sales                                                                                                                          |  | $                  | 70,153 |             |  | $         | 13,251 | (D) |  | $ | 56,902 | 
|Cost of goods sold                                                                                                                 |  |                    | 34,088 |             |  |           | 6,839  | (D) |  |   | 27,249 | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Gross profit                                                                                                                       |  |                    | 36,065 |             |  |           | 6,412  |     |  |   | 29,653 | 
|Selling, general & administrative                                                                                                  |  |                    | 36,535 |             |  |           | 9,697  | (D) |  |   | 26,838 | 
|Impairment of long-lived assets                                                                                                    |  |                    |       |             |  |           |       |     |  |   |       | 
|Restructuring expense                                                                                                              |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Operating income / (loss)                                                                                                          |  |                    | (470   | )           |  |           | (3,285 | )   |  |   | 2,815  | 
|Interest expense, net                                                                                                              |  |                    | 755    |             |  |           |       |     |  |   | 755    | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Earnings / (loss) before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                    | (1,225 | )           |  |           | (3,285 | )   |  |   | 2,060  | 
|Reorganization expense / (gain)                                                                                                    |  |                    | 2,639  |             |  |           | 2,639  | (G) |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Earnings / (loss) before taxes, extraordinary item and
cumulative effect of a change in accounting principle                       |  |                    | (3,864 | )           |  |           | (5,924 | )   |  |   | 2,060  | 
|Income taxes                                                                                                                       |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle                          |  |                    | (3,864 | )           |  |           | (5,924 | )   |  |   | 2,060  | 
|Extraordinary (loss) / gain, net                                                                                                   |  |                    |       |             |  |           |       |     |  |   |       | 
|Cumulative effect of a change in accounting principle                                                                              |  |                    |       |             |  |           |       |     |  |   |       | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss)                                                                                                              |  | $                  | (3,864 | )           |  | $         | (5,924 | )   |  | $ | 2,060  | 
|                                                                                                                                   |  |                    |        |             |  |           |        |     |  |   |        | 



|(A) |  | Represents the combination of the Predecessor Companys financial
results for the five months ended June 2, 2001 and the Successor
Companys financial results for the seven months ending December 29,
2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Includes a charge of approximately
$2.6 million in the second quarter of 2001 to reflect the net
realizable value of certain inventories impacted by the sale of the
freestanding operations.                
|   
|(C) |  | Includes a charge of $6.3 million for uncollectible accounts
receivable incurred by the Predecessor Company, $2.9 million of which
related to the host vision centers.                                       
|   
|(D) |  | Represents the results of the freestanding operations, the Sams Club
operations, and the Meijer Thrifty Acres locations that were either sold
or closed during the restructuring of the Company.            
|   
|(E) |  | Represents the impairment of fixed assets for the freestanding
locations that were scheduled for closure prior to the Companys Chapter
11 filing.                                                           
|   
|(F) |  | Represents the severance and other closing costs incurred related to
the closure of certain freestanding locations prior to the Companys
Chapter 11 filing.                                                 
|   
|(G) |  | Reorganization items and
Extraordinary gains and losses were expenses of the Predecessor
Company related to the store closures and the Chapter 11 procedures.                                                
|   
|(H) |  | Cumulative effect of a change in
accounting principles represents the Predecessor Companys
adoption of SAB101. (See Note 2 to the Consolidated Financial
Statements.)                                       

17



---



##### 



Historical Pro Forma Annual Results of Ongoing Operations.The following pro
forma annual information presents the Companys results of operations for the
retail store operations retained by the Company upon emergence from bankruptcy.
Accordingly, such pro forma data is presented as if the freestanding
operations, the Sams Club operations and other disposed operations were closed
or disposed of as of the beginning of the periods presented. Costs related to
the bankruptcy, reorganization and restructuring costs, are excluded.

December 29, 2001
    
    December
30, 2000Domestic comparable store sales growth
    
    
    0.0
    %
    
    
    2.0
    %Store count at end of period
    
    
    514
    
    
    
    499Net sales
    
    $
    237,885
    
    
    $
    234,449Gross profit
    
    $
    130,800
    
    
    $
    127,600Operating income
    
    $
    7,374
    
    
    $
    17,255Net
earnings/(loss)
    
    $
    (2,165
    )
    
    $
    9,532Capital expenditures
    
    $
    4,715
    
    
    $
    4,500Depreciation and amortization
    
    $
    16,149
    
    
    $
    11,389


Pro forma net sales and gross profit have increased over the prior year
primarily due to 18 new host vision centers opened in 2001 and 21 new vision
centers opened during fiscal 2000, which operated for all of fiscal 2001, but
only a portion of fiscal 2000.

Pro forma operating income declined in fiscal 2001 for the following reasons:



| |  |  | amortization of Intangible Value of Contractual Rights and
depreciation of revalued fixed assets, both of which were established
during fresh start accounting, totaling approximately $4.4 million and
$1.0 million, respectively
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in payroll costs of $0.9 million resulting from new store openings.
| | - |  | -----------------------------------------------------------------------------



| |  |  | increases in benefit costs in 2001 of approximately $600,000 due to an increase in rates and increased claims experience
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in third party processing costs resulting from an increase in managed care sales as a percentage of total sales
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | a $2.9 million charge for uncollectible accounts receivable
incurred by the Predecessor Companys host vision centers in 2001 and a
charge of $300,000 for inventory.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pro forma net earnings/(loss) decreased from income of
$9.5 million to a loss of $2.2 million in fiscal 2001. In addition to the factors
discussed above, the Company incurred additional interest expense of
approximately $1.8 million
due to the issuance of its new Senior Notes and the Company's emergence from bankruptcy in May 2001.

18



---



##### 





---

USE OF NON-GAAP FINANCIAL MEASURES

We frequently refer to EBITDA in this document. EBITDA is calculated as
net earnings before interest, taxes, depreciation, and amortization,
extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items
as defined in the Indenture governing our Senior Notes. We
refer to EBITDA because:



| |  |  | It is the basis for the calculation of the
excess cash flow principal repayment under our senior notes; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | It is a widely accepted financial indicator
of a companys ability to service or incur indebtedness.
| | - |  | ----------------------------------------------------------------------------------------------------

EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles (GAAP), is not necessarily indicative of cash available
to fund all cash flow needs, should not be considered an alternative to net
income or to cash flow from operations (as determined in accordance with GAAP)
and should not be considered an indication of our operating performance or as a
measure of liquidity. EBITDA is not necessarily comparable to similarly titled
measures for other companies.

Reconciliation to Non-GAAP
Financial Measures

The following tables provide
reconciliations of reported net earnings to historical pro forma
EBITDA for the years ended December 29, 2001
and December 30, 2000. EBITDA is calculated as net earnings before
interest, taxes, depreciation and amortization, extraordinary items,
cumulative effect of a change in accounting principle, and
reorganization items. (See
Managements Discussion and Analysis  Use of Non-GAAP
Financial Measures.)

Twelve
Months EndedDecember 29, 2001As Reported (A)
    
    Adjustments
    
    Pro FormaNet earnings/(loss)
    
    $
    107,463
    
    
    $
    109,628
    
    
    $
    (2,165
    )Addback:Interest expense, net
    
    
    9,539
    
    
    
    
    
    
    
    9,539Reorganization expense/(gain)
    
    
    (102,515
    )
    
    
    (102,515
    )(C)
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    Extraordinary (gain)/loss, net
    
    
    (17,182
    )
    
    
    (17,182
    )(C)
    
    
    Depreciation and amortization
    
    
    16,233
    
    
    
    84
    (B)
    
    
    16,149EBITDA
    
    $
    13,538
    
    
    $
    (9,985
    )
    
    $
    23,523


Twelve
Months EndedDecember 30, 2000As Reported
    
    Adjustments
    
    Pro FormaNet earnings/(loss)
    
    $
    (139,880
    )
    
    $
    (149,413
    )
    
    $
    9,532Addback:Interest expense, net
    
    
    7,723
    
    
    
    
    
    
    
    7,723Reorganization expense/(gain)
    
    
    121,539
    
    
    
    121,539
    (C)
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    Extraordinary (gain)/loss, net
    
    
    827
    
    
    
    827
    (C)
    
    
    Cumulative effect,
net
    
    
    3,378
    
    
    
    3,378
    (D)
    
    
    Depreciation and amortization
    
    
    17,526
    
    
    
    6,138
    (B)
    
    
    11,389EBITDA
    
    $
    11,113
    
    
    $
    (17,531
    )
    
    $
    28,644


19



---



##### 





|(A) |  | Represents the combination of the Predecessor Companys financial
results for the five months ended June 2, 2001 and the Successor
Companys financial results for the seven months ending December 29,
2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Represents the results of the freestanding operations, the Sams Club
operations, and the Meijer Thrifty Acres locations that were either sold
or closed during the restructuring of the Company.            
|   
|(C) |  | Reorganization items and
Extraordinary gains and losses were expenses of the Predecessor
Company related to the store closures and the Chapter 11 procedures.                                                
|   
|(D) |  | Cumulative effect of a change in
accounting principles represents the Predecessor Companys
adoption of SAB 101. (See Note 2 to the Consolidated Financial
Statements.)                                      

20



---



##### 



YEAR ENDED DECEMBER 30, 2000 COMPARED TO YEAR ENDED JANUARY 1, 2000

Net Sales. The Company recorded net sales of $307.7 million in fiscal 2000, a
decrease of 6.5% over sales of $329.1 million in fiscal 1999. Sales decreased
due to the following reasons:



| |  |  | The Company closed 91 freestanding stores in April 2000. Theses
stores had sales of $3.1 million in 2000 versus $13.0 million in 1999, a
reduction of $9.9 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The remaining freestanding stores generated negative comparable store
sales of 15.5% resulting in a decrease of $10.6 million in sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2000, the Company closed 117 Sams Club locations, 72 of which
were terminated prior to the end of their lease term. These closings
resulted in a sales decrease of $12.2 million in 2000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These decreases were partially offset by:



| |  |  | Favorable comparable store sales at the Wal-Mart and Military
divisions of 2.0% and 6.5%, respectively. This resulted in a $4.7
million sales increase.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | New store openings at the Wal-Mart and Military divisions resulted in
sales increases of $6.9 million over the prior year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

In addition, the Companys adoption of SAB 101 deferred the recognition of
approximately $300,000 of net sales in fiscal 2000. (See Note 2 of
Consolidated Financial Statements.)

Gross Profit. In 2000, gross profit decreased to $164.2 million versus $181.3
million in 1999. This decrease was due to the following:



| |  |  | A reduction in sales caused by the closure of all of the Companys
Sams Club locations, as well as the operation of approximately 97 fewer
freestanding locations and the negative comparable store sales
registered by the remaining freestanding vision centers acquired by the
Company ($11.8 million).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A charge of approximately $1.1 million to adjust inventory at the
Companys freestanding stores to net realizable value (See
Reorganization Items, Restructuring Expenses and Impairment of
Long-lived Assets).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A reduction in vendor promotional monies and independent optometrist
revenue from the amounts received a year ago.
| | - |  | ------------------------------------------------------------------------------------------------------------------

Gross profit as a percentage of sales decreased from 55.1% in 1999 to 53.4% in
2000. In addition to the reasons described above, the decrease can also be
attributed to the following:



| |  |  | A loss of efficiency in the Fullerton Lab caused by the decrease in
volume as a result of declining sales levels in the Companys
freestanding vision centers as well as lower volume resulting from
closed stores.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A sales shift from eyeglasses to contact lenses caused by contact
lens promotions in the freestanding vision centers. Eyeglasses have a
higher margin than do contact lenses. Additionally, contact lens
margins decreased due to competitive price pressure.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decline in average sales per store recorded by the freestanding
operations caused rent as a percentage of net sales to increase and
thereby reduced margin as a percent of net sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Selling, General, and Administrative Expense. This category of expense includes
both retail operating expense and corporate office administrative costs. SG&A
expense decreased from $177.2 million in 1999 to $166.4 million in 2000. The
decrease was due primarily to the following:



| |  |  | Payroll savings of $6.7 million from the closure of the Sams Club
locations and approximately 97 freestanding locations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Home office savings of $2.2 million related to the elimination of
amortization of goodwill from the Frame-n-Lens, New West and Midwest
acquisitions, which was impaired in the third quarter of 2000, and a
reduction in payroll, recruiting and relocation expenses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Income/(Loss). Operating results for 2000, prior to reorganization
and restructuring items and impairment of long-lived assets, decreased to an
operating loss of $2.1 million versus operating income of $4.1 million in 1999.

21



---



##### 



Interest Expense. Interest expense decreased from $19.3 million in 1999 to $7.7
million in 2000. Because of the filing of the Chapter 11 Cases, we have
stopped accruing for interest on unsecured debt until the Company emerges from
Chapter 11 of the Bankruptcy Code, or it becomes probable that the Company will
pay these amounts as part of a plan of reorganization. Contractual interest
expense for 2000 was $20.7 million. In addition, interest expense excludes
$144,000 of interest income which has been reflected as a reorganization item.

Benefit for Income Taxes. We recorded a pre-tax operating loss of $135.7
million in 2000 versus a loss of $17.2 million in 1999. The resulting income
tax benefit was approximately $1.7 million. We have established a valuation
allowance equal to the amount of the tax benefit.

Extraordinary Loss.
Results also include an extraordinary loss of $827,000 and $406,000 in
2000 and 1999 associated with the write-off of the capitalized costs of the Companys
previous credit facilities.

Cumulative Effect of a Change in an Accounting Principle. In December 1999, the
SEC issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. SAB 101 summarizes the SECs view in applying generally accepted
accounting principles to selected revenue recognition issues. Prior to the
adoption of SAB 101, the Company recognized revenues and the related costs from
retail sales when at least 50% of the payment was received. In response to SAB
101, the Company is required to recognize revenue upon delivery of the product.
The cumulative effect of this change in accounting principle was a $3.4
million reduction in net earnings of 2000.

Net Income/(loss). The Company recorded a net loss of $139.9 million in
2000, or a loss of $6.61 per basic and diluted share versus a loss of $17.6
million in 1999 or $0.83 per basic and diluted share.

REORGANIZATION ITEMS, RESTRUCTURING EXPENSES AND IMPAIRMENT OF LONG-LIVED
ASSETS.

General

In the last quarter of 1999 and in fiscal 2000, we recorded charges relating to
store closings, the impairment of long-lived assets and the expenses incurred
in the Chapter 11 Cases. Generally accepted accounting principles require
different presentations depending on whether we incurred the cost before or
after the filing of the Chapter 11 Cases.

Impairment of Fixed Assets and Restructuring Expenses

We have recorded charges for impairment of fixed assets and restructuring
expenses in connection with stores closed before the filing of the Chapter 11
Cases. Emerging Issues Task Force Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits to Exit an Activity (Including Certain Costs
Incurred in a Restructuring), requires that we present these charges as
components of operating income.

In connection with stores closed after the filing of the Chapter 11 Cases, we
have recorded charges for impairment of fixed assets and for restructuring
expenses. All expenses of this nature incurred after the first quarter of 2000
have been presented as reorganization items, below operating income.

Summary of Restructuring Charges

The table below summarizes charges for impairment of fixed assets and
restructuring expenses incurred in 1999 and 2000 before the Company began the
Chapter 11 proceedings (amounts in thousands):

2000
    
    1999Impairment of fixed assets
    
    $
    2,684
    
    
    $
    1,952Restructuring expense:Provision for rejected leases
    
    $
    1,362Other store closing costs
    
    
    239$
    1,601


Impairment and restructuring charges incurred after the first quarter of 2000
are considered reorganization items and are presented below operating income.

22



---



##### 



Summary of Reorganization Items

Results for fiscal 2000 include charges of $121.5 million, which were incurred
after the Company filed the Chapter 11 Cases.

Impairment of Long-Lived Assets

Due to continuing negative cash flows, coupled with the possible sale or
disposition of certain Company assets, we recorded a non-cash charge of $100.8
million for the impairment of goodwill associated with the acquisition of
Frame-n-Lens Optical, Inc., New West Eyeworks, Inc. and Midwest Vision, Inc. in
the third quarter of 2000. In addition, we recorded a non-cash charge of $10.6
million to reflect the impairment of fixed assets associated with these
acquired entities.

The Company terminated ten leases governing all of the Companys units located
in Meijer Thrifty Acre locations. The Company recorded a non-cash pre-tax
charge of $987,000 in 2000 related to the impairment of leasehold improvements
and furniture and fixtures in the Meijer locations.

In the second quarter of 2000, the Company reached an agreement with Wal-Mart
Stores, Inc. to terminate its 72 leases governing all of the Companys units
located in Sams Club locations. Pursuant to this agreement, the Company
turned over all such locations to Wal-Mart Stores by September 1, 2000. The
Company received no proceeds from Wal-Mart for the early termination, and
Wal-Mart waived all claims for rent under the leases for the balance of the
original lease term. The Company recorded a non-cash pre-tax charge of
$367,000 related to the impairment of leasehold improvements and furniture and
fixtures in the Sams Club locations.

A summary of the impairment charges recorded in 2000 follows (amounts in
thousands):

Impairment of goodwill:Frame-n-Lens
    
    $
    38,318New West Eyeworks
    
    
    60,610Midwest Vision
    
    
    1,877Total goodwill impairment
    
    $
    100,805Impairment of fixed assets:Frame-n-Lens
    
    $
    4,792New West Eyeworks
    
    
    5,186Midwest Vision
    
    
    668Meijer Thrifty Acre
    
    
    987Sams Club
    
    
    367Total fixed asset impairment
    
    $
    12,000


In addition to the impairment of goodwill and fixed assets, the Company
recorded adjustments to inventory of $1.1 million and to accounts receivable of
$0.5 million to adjust the carrying value to net realizable value in 2000.
These charges were included in cost of goods sold and SG&A expense, as
appropriate.

SUMMARY OF LEASE AGREEMENTS

We have agreements governing our operations in host environments, such as
Wal-Mart. Typically, each agreement is for a base term, followed by an option
to renew for a specified length of time. The agreements provide for payments
of minimum and percentage rent, and also contain customary provisions for
leased department operations. The table below sets forth key data about each
of these agreements:

No. of OptionsVision Centers
    
    No. of Units as of
    
    Length of Base
    
    Length of Option
    
    Exercisable inLocated in
    
    December 29, 2001
    
    Term (in years)
    
    Term (in years)
    
    Fiscal 2002Wal-Mart
    
    
    400
    
    
    9
    
    3
    
    
    45Fred Meyer
    
    
    55
    
    
    5
    
    5
    
    
    Wal-Mart de Mexico
    
    
    35
    
    
    5
    
    2 or 1
    
    
    Military Bases
    
    
    24
    
    
    2 or 5
    
    
    
    
    


23



---



##### 



Wal-Mart Vision Centers

Our agreement with Wal-Mart gives us the right to open 400 vision centers, the
last of which opened in 2001. Our agreement with Wal-Mart also provides that,
if Wal-Mart converts its own store to a supercenter (a store which contains a
grocery department in addition to the traditional Wal-Mart store offering) and
relocates our vision center as part of the conversion, the term of our lease
begins again. During 2001, 11 locations were relocated, effectively renewing
these leases. We expect between 11 and 14 leases to relocate to supercenters in
2002. We believe that Wal-Mart may in the future convert many of its stores
and thereby cause many of our leases to start again. We have received no
assurances from Wal-Mart as to how many of their locations will ultimately be
converted.

The following table sets forth the number of leases for domestic Wal-Mart and
Fred Meyer vision centers that expire each calendar year, assuming the company
exercises all available options to extend the terms of the leases.
This table includes scheduled superstore conversions which are known
as of March 2001. The number of lease expirations indicated could decrease if there is an
increase in the number of future supercenter conversions.

LEASES EXPIRING IN CALENDAR YEARHOST
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2008 ANDCOMPANY
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    THEREAFTER
    

    TOTALWal-Mart
    
    
    6
    
    
    
    36
    
    
    
    44
    
    
    
    43
    
    
    
    53
    
    
    
    62
    
    
    
    156
    
    

    
    400Fred Meyer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    

    
    55Totals
    
    
    6
    
    
    
    36
    
    
    
    44
    
    
    
    43
    
    
    
    53
    
    
    
    62
    
    
    
    211
    
    

    
    455


Of the six Wal-Mart leases scheduled to expire in 2002, one location was closed
in the first quarter of 2002 at the end of the original nine-year lease term.
The remaining five leases will expire on December 31, 2002 which falls in the
Companys fiscal year 2003. These five leases represent annualized sales of
approximately $3.3 million and annualized store-level cash flow of
approximately $1 million. In 2003, 36 leases are scheduled to expire over the
course of the year, including five closed on December 31, 2002;
eight in the first
quarter, five in the second quarter, seven in the third quarter, and eleven in
the fourth quarter. These stores represent annualized sales of approximately
$16.6 million and annualized store-level cash flow of approximately $2.3
million. Store-level cash flow excludes corporate overhead and other costs not
specifically attributable to individual stores. We expect store closing costs
to average between $5,000 and $10,000 per vision center.

As of December 29, 2001, we had 91 vision centers that were operating in the
three-year extension period of the Wal-Mart lease. We exercised our option to
renew the leases for the three year extension period for 46 Wal-Mart vision
centers in 2001. The base term for 45 vision centers expires in 2002, and we
will need to determine which leases to extend. We expect to renew the leases
for the vast majority of these vision centers. These decisions will be based
on various factors, including sales levels, anticipated future profitability,
increased rental fees in the option period, and market share.

Other Vision Centers

Our agreement with Wal-Mart de Mexico provides that each party will not deal
with other parties to operate leased department vision centers in Mexico. (We
have agreed to waive this restriction for the next five stores opened by
Wal-Mart de Mexico). This agreement also permits each party to terminate the
lease for each vision center which fails to meet minimum sales requirements
specified in the agreement. Under our agreement with Wal-Mart de Mexico, we
have two options for two-year renewals, and one option for an additional
one-year renewal, for each vision center.

Our agreement with Fred Meyer obligates us to exercise our renewal option as to
all or none of these locations with the exception of five stores, which are
covered by a separate agreement. This option must be exercised in 2003.

Inflation

Although the Company cannot determine the precise effects of inflation, it does
not believe inflation has had a material effect on its domestic sales or
results of operations. The Company cannot determine whether inflation will have
a material long-term effect on its sales or results of operations.

As a result of inflation in prior years, the Company has in the past adjusted
its retail pricing. Further pricing adjustments are contingent upon competitive
pricing levels in the marketplace. Management is monitoring the continuing
impact of these inflationary trends.

24



---



##### 



LIQUIDITY AND CAPITAL RESOURCES

Our capital needs have been for operating expenses, capital expenditures and
interest expense. Our sources of capital have been cash flow from operations
and proceeds from the sale of the freestanding operations. The Company made its
first principal payment on the Senior Notes of $1.6 million on February 28,
2002.

The Company emerged from bankruptcy on May 31, 2001. Upon emergence, all of
the Companys pre-petition unsecured liabilities, including the previous senior
notes, and all former equity interests were cancelled. Liabilities Subject to
Compromise were $169 million and were converted at approximately 85% of face
value into a combination of new secured notes and common stock. The notes have
a face value of $120 million, provide for payment of interest twice a year at
the end of March and September and are subordinated to debt under the Companys
credit facility. The notes are payable over eight years with principal
repayments based on excess cash flow. Excess cash flow is defined as EBITDA
(as defined) plus or minus working capital changes less the sum of capital expenditures,
cash interest payments and cash tax payments, and is subject to a $3 million
cash reserve. Any remaining principal balance will be due in 2009. The obligation to prepay principal will have an adverse impact
on the ability of the Company to accumulate cash. We can make no assurance as
to whether our operations will generate sufficient cash for us to make
principal repayments based on excess cash flow. A decrease in sales levels,
coupled with the potential impact of the slowing economy on retail sales
overall, could have a negative impact on our cash balances and on the amount of
any excess cash principal payments due in 2002 and beyond. If this trend of
flat sales continues, our ability to make our excess cash flow payments under
our indenture will be significantly impaired. In addition, a prolongation of
this trend, coupled with the potential loss of vision centers under our
Wal-Mart Master Lease, would substantially impair our ability to pay off or
refinance the notes.

In May 2001, the Companys secured revolving credit facility with Foothill
Capital expired and was replaced with a secured revolving Credit Facility (the
Exit Facility) from Fleet Financial Corporation. The Exit Facility has a
term of three years, bears interest at the prime rate plus 0.75% per annum or
at LIBOR plus 3.0%, and provides availability of an estimated $10 million,
subject to borrowing base limitations and letter of credit
requirements. We believe that the Exit Facility will provide the Company with
adequate liquidity during 2002.

As of March 1, 2002 and subsequent to the Companys emergence from bankruptcy
in May 2001, we have made cash payments related to the Predecessor Company and
to the completion of the bankruptcy process. These cash payments approximate
$8 million and include:



| |  |  | Reclamation payments, convenience claims and assumed contract cure amounts;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Cash payments related to the disposition of the freestanding stores;
| | - |  | --------------------------------------------------------------------



| |  |  | Cash payments to formalize the Exit Facility;
| | - |  | ---------------------------------------------



| |  |  | Cash payments to professional advisors; and
| | - |  | -------------------------------------------



| |  |  | Cash payments in accordance with the retention plan.
| | - |  | ----------------------------------------------------

A majority of these costs were accrued in the Successor Companys opening
balance sheet. Until the claims distribution process is complete, the Company
will continue to make cash payments for 1) the settlement of landlord and other
disputed cash claims, and 2) professional costs related to the settlement of
claims and the distribution of stocks and bonds.

It is the Companys intent to use excess cash for its ongoing operations, for
payment of interest expense and repayment of principal on the Companys
outstanding debt.

As of December 29, 2001, the Companys remaining unused availability under the
Exit Facility, after being reduced for letter of credit requirements, has
decreased to approximately $1.7 million, as inventory and receivable levels
(borrowing base components) have declined. At December 29, 2001 and at March
1, 2002, the Company had no borrowings under the Exit Facility, and had letters
of credit of $3.5 million outstanding. The Company believes that cash
generated from operations and funds available under the Exit Facility will be
sufficient to satisfy its cash requirements through 2002.

In April 2001, the Company finalized the sale of its freestanding operations
and received cash proceeds of $5.7 million related to this transaction. The
Company anticipates that cash flow from operations will improve with the
disposition of the freestanding operations.

The Company opened five Wal-Mart vision centers in 2001. We have opened 400
Wal-Mart vision centers, as provided for in our Master Lease Agreement. We may
open between 5 and 10 additional vision centers in 2002 in other host
environments dependent upon liquidity, construction schedules and other
constraints. For each of our new vision centers, we typically spend between
$100,000 and $140,000 for fixed assets and approximately $25,000 for inventory.

During 2001, we converted 11 Wal-Mart vision centers to supercenters. In 2002,
we expect to convert between 11 and 14 of our existing Wal-Mart vision centers
to supercenters. Each supercenter conversion requires expenditures of
approximately $60,000 to $80,000.

25



---



##### 



In conjunction with our historical results from operations, emergence from
Chapter 11 and the disposition of our freestanding operations, the Company
incurred significant net operating losses. These losses are expected to result
in significant tax net operating loss carry-forwards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Managements Discussion and Analysis of Financial Condition and Results of
Operations discuss the consolidated financial statements of National Vision,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments and
incorporates any changes in such estimates and judgments into the accounting
records underlying the Companys consolidated financial statements. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We have identified the policies below as critical to our business operations
and the understanding of our results of operations. The impact and any
associated risks related to these policies on our business operations is
discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect our reported and
expected financial results. For a detailed discussion on the application of
these and other accounting policies, see Note 2 in the Notes to the
Consolidated Financial Statements beginning on page F-1.

Revenue Recognition

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101).
SAB 101 summarizes the SECs view in
applying generally accepted accounting principles to selected revenue
recognition issues. Prior to the adoption of SAB 101, the Company recognized
revenues and the related costs from retail sales when at least 50% of the
payment was received. In response to SAB 101, the Company is required to
recognize revenue upon delivery of the product. The amount of cash received at
the time the customers order is placed is recorded as a deposit liability and
is presented within accrued liabilities. The effect of this change in
accounting principle was applied cumulatively as of the beginning of 2000 and
totaled $3.4 million.

Management must make estimates of potential returns and replacements of all or
part of the eyewear sold to a customer. We analyze historical remake and
warranty activity, consider current economic trends and changes in customer
demand and acceptance of our products when evaluating the adequacy of our
estimate of these costs. Differences may result in the amount and timing of
revenue and related costs for any period if management made different
judgements or utilized different estimates.

Cost of Goods Sold

The Company recognizes cost of product
sold to retail customers when the sales transaction is complete and
revenue is recognized. Periodically, the Company receives purchase
discounts or reduced pricing on inventory purchases; these reductions
in the normal purchase price are accounted for in the weighted
average cost of inventory.

Allowance for Uncollectible Receivables under Reimbursement Plans

Managed care accounts receivable are reduced by an allowance for amounts that
may become uncollectible in the future. Substantially all of the Companys
receivables are due from health care plans or third-party administrators
located throughout the United States. Approximately 12% of the Company net
sales from ongoing businesses relate to products sold to customers that
ultimately will be funded in full or in part through private insurance plans,
third party insurance administration programs or government reimbursement
programs such as Medicare and Medicaid. Failure by the Company to accurately
file for reimbursement on a timely basis with these programs can have an
adverse effect on the Companys collection results which, in turn, will have an
adverse effect on liquidity and profitability.

Estimates of our allowance for uncollectible receivables are based on our
historical collection experience, historical and current operating, billing and
collection trends and a percentage of our receivables by aging category.
Changes in our billing and collection processes, changes in funding policies by
insurance plans and changes in our sales mix within insurance plans may have a
material effect on the amount and timing of our estimated expense requirements.

Accounting for Inventory

The Companys inventories are stated at the lower of weighted average cost or
market.

In most cases, the expected sales value (i.e., market value) of the Companys
inventory is higher than its cost. However, as the Company progresses through
a selling season, certain slow-moving merchandise may be removed from stores
and returned to the Companys distribution center to be sold below cost in
secondary markets. As a result, there is a high degree of judgment and
complexity in determining the market value of such inventories. For inventory
on hand, the Company estimates the future selling price of its merchandise,
given its current selling price and its planned promotional activities, and
provides a reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.

26



---



##### 



The Company conducts physical inventory counts for a selection of store
locations on a periodic basis through the course of the fiscal year and adjusts
the Companys records to reflect the actual inventory counts. Inventory in the
Companys distribution center is counted near the end of the fiscal year. As all
locations are not counted as of the Companys reporting dates, the Company
provides a reserve for inventory shrinkage based principally on historical
inventory shrinkage experience.

Fresh Start Accounting

In accounting for the effects of the reorganization, the Company adopted fresh
start accounting principles as contained in the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code  (SOP 90-7). SOP
90-7 was applicable because pre-reorganization shareholders received none of
the Companys new common stock and the reorganization value of the assets of
the Successor company was less than the total pre-petition liabilities allowed
plus post-petition liabilities. SOP 90-7 also requires that any changes in accounting
principles required within twelve months of fresh start accounting, must be
adopted at the time of implementation of fresh start accounting.

Fresh start accounting principles require that we determine the reorganization
value of the reorganized Company. The Companys reorganization value was
developed by the Company, the Official Committee of Unsecured Creditors and
their respective financial advisors. The reorganization value was based on a
calculation of the present value of the free cash flows under the Companys
financial projections, including an assumption of a terminal value. Such
projections were submitted to the bankruptcy court and to creditors for review
and objection as part of the Companys disclosure statement accompanying the
Plan.

Valuation of Long-Lived and
Intangible Assets

Our most significant intangible asset is the Intangible Value of Contractual
Rights, which was established as part of the Companys adoption of fresh start
accounting in May 2001. This intangible asset, which has a value of $109.2
million at December 29, 2001, represents the value of the Companys lease
agreement with Wal-Mart and the business relationship therein created. In
accordance with SFAS No. 142, this intangible is an amortizable asset because
it has a finite useful life. However, the precise length of its life is not
known due primarily to the Wal-Mart superstore conversions that automatically
trigger extensions on the contractual life of the asset. Based on our
projections, our best estimate of the useful life of this asset is 15 years.
Due to the uncertainty involved in predicting the pattern of economic benefits
realized from the Wal-Mart relationship, we amortize this asset using the
straight-line method.

We assess the impairment of all identifiable intangibles and long-lived assets
on an annual basis and whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we consider important,
which could trigger an impairment review, include (1) a significant
underperformance of vision center operations relative to expected historical or
projected future operating results; (2) significant changes in the manner of
our use of Company assets or the strategy for our overall retail optical
business; (3) significant negative industry or economic trends; (4) a
significant decline or adverse change in the rate or geographic concentration
of Wal-Mart host store relocations or superstore conversions; and (5) a
permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a projected cash
flow model. If the projected cash flows are not in excess of the book value of
the related asset, we measure the impairment based on a projected discounted
cash flow method. Significant management judgment is required regarding the
existence of impairment indicators as discussed above. Future events could
cause us to conclude that impairment indicators exist and that long-lived
assets or intangible assets are impaired. Any resulting impairment loss could
have a material adverse impact on our financial condition and results of
operations. Based on our review of our intangible and other long-lived assets
as of December 29, 2001, no impairment was determined to exist.

Accounting for Stock Options

At a meeting held on October 25, 2001, the Compensation Committee of the Board
of Directors awarded stock options and performance shares to approximately 530
employees and outside directors. Stock options covering 348,750 shares were
awarded, at a strike price of $0.40 per share, the price at which common stock
of the Company closed on October 25, 2001. The options vest on the seventh
anniversary of the grant date; however, vesting may be accelerated in the event
the Company attains defined performance goals set by the Board of Directors.
Because the number of shares and the per share strike price are not subject to
uncertainty, the option plan qualifies for fixed accounting treatment. As a
result, the Company does not record compensation expense in connection with the
granting of the stock options. If accounting standards change, and the stock
options were to receive variable accounting treatment, the Company would
periodically record compensation expense over the vesting period of the stock
options equal to the spread between the strike price and the trading price of
the common stock. Note 2 to the financial statements sets forth information
regarding the Pro Forma impact of stock options on net income and basic and
diluted earnings per share.

27



---



##### 



Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves estimating our actual current tax exposure
together with assessing temporary differences resulting from differing
treatment of items, such as equipment depreciation, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations.

The Company emerged from Chapter 11 Bankruptcy on May 31, 2001. As part of the
emergence Plan, the Companys capital structure was highly leveraged with $120
million of senior notes with interest payable at 12% per annum. Before, during
and after the bankruptcy process, the Company incurred significant net
operating losses (NOL) that result in tax loss carry-forwards. A portion of
these carry-forwards are subject to limitations under section 382 of the
Internal Revenue Code.

Generally accepted accounting principles require that we record a valuation
allowance against the deferred tax asset associated with this NOL if it is
more likely than not that we will not be able to utilize it to offset future
taxes. Due to the size of the NOL carry-forward in relation to our history of
unprofitable operations and the continuing uncertainties surrounding the
profitability of our ongoing retail businesses taking into consideration the
highly leveraged capital structure within which we operate as discussed above,
we have not recognized any of this net deferred tax asset. We currently
provide for income taxes only to the extent that we expect to pay cash taxes
for current income.

It is possible, however, that we could be profitable in the future at levels
which cause management to conclude that it is more likely than not that we will
realize all or a portion of the NOL carry forward. Upon reaching such a
conclusion, we would immediately record the estimated net realizable value at a
rate equal to our combined federal and state effective rates. Subsequent
revisions to the estimated net realizable value of the deferred tax asset could
cause our provision for income taxes to vary significantly from period to
period, although our cash tax payments would remain unaffected until the
benefit of the NOL is utilized.

Self-Insurance Accruals

We self-insure estimated costs associated with workers compensation claims and
group medical liabilities, up to certain limits. Insurance reserves are
established based on actuarial estimates of the loss that we will ultimately incur on reported
claims, as well as estimates of claims that have been incurred but not yet
reported. Trends in actual experience are
a significant factor in the determination of such reserves. We believe our
estimated reserves for such claims are adequate, however actual experience in
claim frequency and/or severity could materially differ from our estimates and
affect our results of operations.

Other Accounting Policies

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for managements judgment in selecting any available
alternative. See our audited consolidated financial statements and notes
thereto which begin on page F-1 of this Annual Report on Form 10-K which
contain accounting policies and other disclosures required by generally
accepted accounting principles.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. In accordance with SOP 90-7, we adopted SFAS No. 141 and SFAS No. 142 at the fresh
start implementation date. The adoption of these pronouncements did not have
a material impact on our financial statements.

The FASB also recently issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement No. 144 supersedes Statement No. 121 to supply a
single accounting approach for measuring impairment of long-lived assets,
including segment of a business accounted for as a discontinued operation or
those to be sold or disposed of other than by sale. We adopted Statement No.
144 in 2001 upon fresh start accounting. Adoption of this pronouncement did
not have a material impact on our financial statements.

28



---



##### 



In December 1999, the SEC issued
Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements. SAB 101 summarizes the SECs view in
applying generally accepted accounting principles to selected revenue
recognition issues. SAB 101 specified that final delivery of product is
required prior to recognizing revenue. Prior to the adoption of SAB 101, the
Company recognized revenues and the related costs from retail sales when at
least 50% of the payment was received. We applied the guidance in SAB 101 to
our financial statements in 2000. The initial impact was reflected as a
cumulative effect adjustment to our consolidated financial statements resulting
from a change in accounting principles.

RISK FACTORS

This Form 10-K/A contains a number of statements about the future. It also
contains statements which involve assumptions about the future. All these
statements are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements represent
our expectations or belief concerning future events, including the following:
any statements regarding future sales levels, the continuation of historical
trends, and the Companys liquidity. Without limiting the foregoing, the words
believes, anticipates, plans, expects, and similar expressions are intended to
identify forward-looking statements.

We do not know whether the
forward-looking statements made in this Form 10-K/A
will prove to be correct. We have tried to identify factors which may cause
these statements to be incorrect, but we may not have identified all of them.
These factors could also have a negative impact on our results. The following
is our non-exclusive list of these factors:

Our recent emergence from bankruptcy may adversely affect our relationships
with our vendors and customers.

On May 31, 2001, we emerged from bankruptcy. Our various relationships with
our vendors and our customers may be adversely affected by our past reliance on
the protections afforded by Chapter 11. In addition, we continue to go through
the process of resolving some claims by potential unsecured creditors pursuant
to our rights under the bankruptcy plan. The process may divert the time and
resources of our management that could otherwise be used in running our
business.

Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under our notes.

As a result of the issuance of our notes, we are highly leveraged. The notes
are subordinated to our credit facility. Assuming the issuance of all of our
notes and after giving effect to the establishment of our credit facility, we
had:



| |  |  | total indebtedness of $120 million represented by the notes, and
| | - |  | ----------------------------------------------------------------



| |  |  | total availability, as of March 1, 2002, of $1.8 million under our credit facility, after letter of credit requirements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

Our ability to pay or refinance our indebtedness, including our ability to
repay the notes, or to fund capital expenditures will depend on our future
performance. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.

Based upon our current level of operations, we believe that our cash flow from
operations, available cash, and available borrowings under our credit facility,
will be adequate to meet our future liquidity needs for at least the next two
years. A decrease in revenues, coupled with the borrowing base limitation
contained in our credit facility, could require us to postpone capital
expenditures.
We cannot assure you that our business will generate sufficient cash flow from
operations, that revenue growth will be realized or that future borrowings will
be available under our credit facility in an amount sufficient to enable us to
pay our indebtedness, including the notes, or to fund our other liquidity
needs.

29



---



##### 



Our substantial indebtedness could have important consequences to you. For
example, it could:



| |  |  | make it more difficult for us to satisfy our obligations under the notes,
| | - |  | -------------------------------------------------------------------------



| |  |  | increase our vulnerability to general adverse economic and industry conditions,
| | - |  | -------------------------------------------------------------------------------



| |  |  | limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other general corporate
requirements,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flow from
operations to the payment of our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures or other general corporate purposes,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and our industry,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage compared to competitors that have less debt, and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | limit, along with the financial and other restrictive covenants in
our indebtedness, our ability to borrow additional funds. Our failure to
comply with the covenants in the indenture under which our notes were
issued or our credit facility would result in an event of default which,
if not cured or waived, could have a material adverse effect on us.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A substantial number of our vision centers are located in Wal-Mart stores. Our
ability to continue to generate revenue depends on our continued relationship
with Wal-Mart.

In connection with our emergence from Chapter 11 reorganization, we have sold
all of our free standing vision centers. We are substantially dependent on
Wal-Mart and its affiliates for our current operations. The following chart
shows, as of December 29, 2001, the number of our vision centers that are in
Wal-Mart stores and the total number of our vision centers:

Category
    
    NumberTotal Vision Centers
    
    
    514Wal-Mart Locations
    
    
    400Wal-Mart
de Mexico
    
    
    35


In addition, vision centers located in Wal-Mart stores accounted for
substantially all of the earnings before interest, taxes, depreciation and
amortization of the vision centers that we continue to own after the sale of
our free standing vision centers for the fiscal year ended December 29, 2001.
Vision centers in Wal-Mart stores rely largely on customer traffic generated by
the Wal-Mart host store. Our agreement with Wal-Mart does not require Wal-Mart
to maintain any existing Wal-Mart store or to open new ones.

Our agreement with Wal-Mart gives us the right to open at least 400 vision
centers, including those already open. We have reached that number. Wal-Mart is
under no obligation to provide us with additional vision center leases.
However, our agreement with Wal-Mart also provides that, if Wal-Mart converts
its own store to a supercenter, which is a store that contains a grocery
department in addition to the traditional Wal-Mart store offering, and
relocates our vision center as part of the conversion, the term of our lease
begins again. We believe that Wal-Mart may in the future convert many of its
stores and thereby cause many of our leases to start again. There were 11
conversions of Wal-Mart stores in which we run vision centers into
supercenters in the year 2001, and 32 of these conversions prior to 2001. We
have received no assurances from Wal-Mart as to how many of their locations
will ultimately be converted.

Our agreement with Wal-Mart provides for a nine-year base term at each vision
center that begins at opening and gives us a three-year extension option.
Wal-Mart is under no obligation to provide us with any further extensions.
Forty-six vision centers have base terms that expired in 2001 under our
Wal-Mart agreement, all of which have been extended, and another forty-five
have base terms that expire in 2002, which we have the option to extend. More
base terms will expire in subsequent years. As each base term expires, we
determine whether to exercise our three-year extension options for our Wal-Mart
vision centers. We make those decisions based upon various factors, including,
for example:



| |  |  | the sales levels of each vision center,
| | - |  | ---------------------------------------



| |  |  | the estimated future profitability of each vision center, and
| | - |  | -------------------------------------------------------------



| |  |  | the increased minimum license fees charged by Wal-Mart during the option period.
| | - |  | --------------------------------------------------------------------------------

We must exercise our extension option for any Wal-Mart vision center at least
six months before its initial license expires. We expect to extend the licenses
for a substantial majority of these vision centers. We cannot assure you,
however, how many licenses we will actually extend.

In each of the next several years, increasing numbers of vision centers under
our Wal-Mart agreement will have their base terms expire. Our rental
obligations to Wal-Mart will increase in the three-year option period. We will
need to continue to improve sales at these vision centers. If we do not, our
rent as a percent of sales will increase significantly during the option
period. Alternatively, we may choose not to exercise the extension options.

30



---



##### 



We cannot control our expansion in our host stores, including Wal-Mart, beyond
those currently under contract. Although we periodically discuss expansion
opportunities with each host, we cannot assure you that any host will offer to
extend our current agreements or offer us additional vision centers. Nor can we
assure you that any renewal or new store offer will be on terms similar to
those in our current agreements. Wal-Mart operates its own optical division.
Wal-Mart may, in the future, allocate its future vision centers entirely to its
own optical division.

Our lack of growth could make it difficult for us to make payments on our
notes, and could adversely affect the price of our common stock.

Average revenues in our Wal-Mart vision centers are approximately $540,000 per
center per year. Average revenues in the other vision centers that we continue
to own after the sale of our free standing vision centers are less than
$300,000 per center per year. The expiration of our leases with Wal-Mart will
cause a reduction in our revenues, which we may not be able to replace with
revenues generated by other vision centers.

Our sales revenues could decrease in the future as Wal-Mart leases expire. It
is unlikely that we will be able to open enough new vision centers under our
Fred Meyer and military contracts to compensate for the loss of the revenues
generated by Wal-Mart vision centers for which our leases expire. We expect
that our expenses, however, will increase over time. A combination of lower
sales and higher expenses would adversely affect our ability to repay or
refinance our notes, which could have an adverse effect on the price of our
common stock. A continuation of the 2001 flat sales levels would also have an
adverse impact.

The use of net operating loss carry-forwards may be subject to limitations.

In conjunction with our historical results from operations, emergence from
Chapter 11 and the disposition of our free standing operations, we incurred
significant net operating losses. These losses are expected to result in
significant net operating loss carry-forwards, the amount of which has not yet
been finally determined. Our ability to utilize our net operating losses that were realized prior to
our emergence from Chapter 11 is limited under
Section 382 of the Internal Revenue Code of 1986. If our net operating
losses realized after our emergence from Chapter 11 are subject to substantial
limitation because of a future change of control of the company or for other
reasons, our cash tax costs would increase and have an adverse effect on our
ability to repay the notes. If, after such a change of control, we
determined that we would be unable to utilize this tax asset, we
could then be forced to write down the asset and record a charge
against our financial results.

Your right to receive payments on our notes will be junior to our borrowings
under our credit facility, which could adversely affect our ability to pay off
the notes.

Our indebtedness under our credit facility is secured by liens against
substantially all of our assets. In the event of a default on our secured
indebtedness, or a bankruptcy, liquidation or reorganization of the company and
our subsidiaries, these assets will be available to satisfy obligations with
respect to the secured indebtedness before they can be used to satisfy our
obligations under our notes. Therefore, there may be insufficient assets
remaining for us to pay off the notes in full.

The terms of our credit facility and the indenture under which our notes were
issued restrict our corporate activities.

Our credit facility contains various restrictive covenants and requires us to
maintain specified financial ratios and satisfy financial tests, such as:



| |  |  | minimum requirements of earnings before interest, taxes, depreciation
and amortization in our credit facility of (1) $6 million for the fiscal
quarter ending September 29, 2001, (2) $11 million for the two fiscal
quarters ending December 29, 2001, (3) $17 million for the three fiscal
quarters ending March 30, 2002, and (4) $19.6 million for the four
fiscal quarters ending June 29, 2002 and for each four quarter period
ending on the last day of each fiscal quarter for the remainder of the
term of our credit facility, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | minimum fixed charge coverage ratios of 1.0 to 1.0.
| | - |  | ---------------------------------------------------

31



---



##### 



Our ability to meet these financial ratios and tests may be affected by events
beyond our control, and we cannot assure you we will meet these tests. In
addition, our credit facility and our indenture limit our ability to take
action with respect to:



| |  |  | capital expenditures,
| | - |  | ---------------------



| |  |  | investments,
| | - |  | ------------



| |  |  | indebtedness,
| | - |  | -------------



| |  |  | liens,
| | - |  | ------



| |  |  | dividends,
| | - |  | ----------



| |  |  | loans,
| | - |  | ------



| |  |  | prepayments of other indebtedness,
| | - |  | ----------------------------------



| |  |  | mergers, acquisitions or sales of assets,
| | - |  | -----------------------------------------



| |  |  | changes in business activities,
| | - |  | -------------------------------



| |  |  | transactions with affiliates, and
| | - |  | ---------------------------------



| |  |  | issuance of equity.
| | - |  | -------------------

Our breach of any of these covenants could result in an event of default under
our credit facility. If a default occurs, our lender can declare our
indebtedness, both principal and interest, immediately due and payable, and
could terminate its commitment to make future advances. In addition, a default
under the indenture could cause the principal and accrued interest on the notes
to become due and payable. The restrictions in the indenture and the credit
facility will likely restrict our ability to obtain additional financing for
working capital, capital expenditures or general corporate purposes. Our
indebtedness requires substantial debt service payments and, with respect to
the indenture, mandatory redemptions of principal, which may restrict our
ability to use our operating cash flow for capital expenditures and other
working capital requirements. We have pledged substantially all of our assets
under our credit facility and under the indenture. If we fail to repay all
amounts declared due and payable, our lender and then the holders of our notes
could proceed against the collateral granted to it to satisfy our obligations.
It is likely that our assets would be insufficient to repay in full that
indebtedness and our other indebtedness, including the notes.

We are required by our indenture to make mandatory redemptions of principal
owing on our notes if we generate excess cash flow, which may have an adverse
impact on our common stock.

The indenture requires mandatory redemptions of principal out of the excess
cash flow that we may generate biannually. There can be no assurances that we
will generate enough excess cash flow to make any mandatory redemptions.
Prepayments of principal on the notes, if any, will prevent us from having
excess cash to reinvest in our business, and could adversely affect the price
of our common stock.

Further issuances of our common stock and our notes could adversely affect
their trading prices.

We issued a total of 5,000,000 shares of our common stock and $120,000,000
aggregate principal amount of our notes to creditors pursuant to the Plan. As
of the March 1, 2002, less than all of the shares of common stock and the notes
have been distributed to creditors who can trade them on The American Stock
Exchange. Some of the shares of common stock and notes have been held in
reserve for distribution to creditors upon the resolution of claims that we
have disputed in the bankruptcy court. Although no issuances of securities
other than pursuant to the Plan are currently contemplated (except grants of
stock options or other stock awards pursuant to employee benefit plans that are
in place) further issuances of our common stock and notes in the future could
take place. These issuances could cause adverse changes in the trading prices
of the common stock and the notes.

The holders of our common stock may exercise significant control over us.

Former holders of our old Senior Notes due 2005 held a large majority of our
unsecured debt in bankruptcy, and thus are the initial holders of a majority of
our common stock. If holders of significant numbers of shares of our common
stock act as a group, these holders could be in a position to control the
outcome of corporate actions requiring shareholder approval, including the
election of directors.

Holders of our common stock and our notes may elect to sell large blocks of
common stock or notes, which may have an adverse effect on the price of our
common stock and our notes.

Our former unsecured creditors received our common stock and our notes in
exchange for their claims against us. Some or all of the holders of our common
stock and notes may prefer to liquidate their investment rather than hold the
securities on a long-term basis. The possibility that one or more of the
holders of significant numbers of shares of our common stock or a large
principal amount of our notes may determine to sell all or a large portion of
their shares of our common stock or their notes in a short period of time may
adversely affect the market price of the common stock or notes. Partially for
that reason, there can be no assurance as to the degree of price volatility in
any trading market that may develop for the common stock and the notes. As a
result, no assurance can be given that any holder of our common stock or our
notes will be able to sell them or at what price any sale may occur. No
assurance can be given

32



---



##### 



as to the market price, if any, that will prevail for
our common stock in the future. If a market were to exist for our notes, they
may trade at prices higher or lower than their face value, depending upon many
factors, including, without limitation, the prevailing interest rates, markets
for similar securities, industry conditions and the performance of, and
investor expectations for us.

Our common stock and our notes have all been issued but not distributed.
Further distributions will be made pursuant to the bankruptcy plan as disputed
claims are resolved. Distributions of our common stock and our notes to people
that decide to sell them immediately could cause sudden adverse changes in the
trading prices of our common stock and our notes.

The public market for our securities has existed for a limited period of time.

Our common stock was previously listed on the NASDAQ Small Cap Market under the
ticker symbol VSTA. It was delisted on May 9, 2000 because its price dropped
below $1.00 for a period of 30 days. Pursuant to the bankruptcy plan, the old
shares of our stock were deemed cancelled, terminated, and of no further force
and effect as of May 31, 2001. 5,000,000 shares of our common stock were issued
in accordance with the terms of the Plan. The public market for our common
stock was initiated by listing on the AMEX on August 27, 2001, and the public
market for our notes was initiated by listing on the AMEX on August 27, 2001.
The price of our common stock has declined very significantly since its
original listing date. There can be no assurance that an active trading market
for our common stock or our notes will develop or be sustained or that the
market price of our common stock or our notes will not further decline.

Our common stock may be delisted from The American Stock Exchange, referred to
as the AMEX, if it does not maintain certain listing standards.

Our recent operating history, including our filing of and emergence from
Chapter 11, has caused the price of our securities to be depressed. In
addition, the general market for securities has been severely depressed in
recent quarters. The price of our common stock has declined very significantly
since its original listing date. The rules of the AMEX allow the exchange to
delist securities if the AMEX determines that a companys securities fail to
meet guidelines with respect to corporate net worth, public float, number of
shareholders, the aggregate market value of shares, or price per share. In
light of our recent operating history specifically, and the market conditions
for stocks in general, we cannot assure purchasers of our common stock or notes
that we will continue to meet the requirements of the AMEX. If we are unable to
continue to satisfy these criteria, the AMEX may begin procedures to remove our
common stock or notes from the exchange. If our common stock or notes are
delisted, a trading market may no longer exist, and the ability of shareholders
to buy and sell common stock or notes may be materially impaired.

We have not declared dividends in the past, and do not anticipate doing so in
the near future, which may adversely affect the price of our common stock.

Our credit facility and our indenture prohibit the payment of cash dividends
without the consent of the lender and the holders of the notes, respectively.
We have never declared or paid any dividend on our capital stock. We currently
anticipate that all of our earnings, if any, will be retained for payment of
the principal amount of the notes, and then for development of our business,
and do not anticipate paying any cash dividends in the foreseeable future.

A change in interest rates could adversely affect us.

We have historically borrowed long-term debt under our credit facility at
variable interest rates. We therefore incur the risk of increased interest
costs if interest rates rise.

The retail eyecare industry is extremely competitive. Failure to attract
customers will depress our earning and may adversely affect our ability to
repay the notes and the price of our common stock.

The retail eyecare industry is extremely competitive. We compete with national
companies such as Lenscrafters and Cole; we also compete with numerous regional
and local firms. In addition, optometrists, ophthalmologists, and opticians
provide many of the same goods and services we provide. The level and intensity
of competition can vary dramatically depending on the particular market. We
believe that we have numerous competitive advantages, such as our everyday low
pricing, product selection, and quality and consistency of service.

We also compete for managed care business. Our competition for this business is
principally the larger national and regional optical firms. Competition for
this business is driven by size of provider network, quality and consistency of
service, and by pricing of vision care services. Successful renewals of
certain existing third-party contracts are integral to maintaining sales
revenues.

Several of our competitors have significantly greater financial resources than
we do. As a result, they may be able to engage in extensive and prolonged price
promotions which may adversely affect our business. They may also be able spend
more than we do for advertising. If we are not able to maintain our market
share of the retail optical industry, our business will suffer. A decline in
our earnings could adversely affect the price of our common stock and the
notes, and our ability to repay the notes.

33



---



##### 



Federal and state governments extensively regulate the health care and
insurance industries. A finding that we have violated existing regulations, or
future adverse changes in those regulations, could negatively affect our
business and its prospects, our ability to repay the notes, and the price of
our common stock and our notes.

Both federal and state governments extensively regulate the delivery of health
care, including relationships among health care providers such as optometrists
and eyewear providers like us. Many states prohibit business corporations from
practicing medicine or controlling the medical judgments or decisions of
physicians. States often also prohibit various financial arrangements, such as
splitting fees with physicians. The legality of our relationships with
opticians and independent optometrists has been and may continue to be
challenged from time to time. Regulations vary from state to state and are
enforced by both courts and regulatory authorities, each with broad discretion.
A ruling that we have violated these laws could, for example, result in:



| |  |  | censure,
| | - |  | --------



| |  |  | delicensing of optometrists,
| | - |  | ----------------------------



| |  |  | civil or criminal penalties, including large civil monetary penalties,
| | - |  | ----------------------------------------------------------------------



| |  |  | invalidation or modification of our agreements with optometrists and opticians, or
| | - |  | ----------------------------------------------------------------------------------



| |  |  | an order requiring us to change our business practices.
| | - |  | -------------------------------------------------------

These consequences could have an adverse effect on our business, which could
impact the price of our common stock and notes and impact our ability to repay
the notes. Also, changes in our relationships with independent optometrists and
opticians could adversely affect our relationship with Wal-Mart or our other
host stores. Local ordinances (such as zoning requirements) can also impose
significant burdens and costs of compliance. Frequently, our competitors sit on
state and local boards. Our risks and costs of compliance are often increased
as a result. All of these matters could cause our business to suffer, our
ability to repay the notes to be adversely affected, and the trading price of
our common stock and notes to decline.

In California, optometrists who practice adjacent to our retail locations are
providers to and subtenants of a subsidiary, which is licensed as a
single-source HMO. This subsidiary is regulated by the Department of Managed
Health Care. This agency has recently required that we change our way of doing
business. This new way of doing business will increase our costs in
California. There is no assurance that the Department will find our new way of
business satisfactory. Our costs of compliance could continue to increase as a
result. Depending on its views, this Department could also seek to revoke our
HMO license. Such a revocation would have a material adverse impact on our
business. On a general basis, the regulatory environment in California has
become more difficult, and future actions of regulatory agencies or private
parties could worsen this trend. Such actions could force us to change the way
we do business, to incur significant expense in litigation and compliance
efforts, and could have a material adverse impact on us.

The fraud and abuse provisions of the Social Security Act and anti-kickback
laws and regulations adopted in many states prohibit soliciting, paying,
receiving or offering any compensation for making, or causing someone to make,
referrals of patients, items or services in some circumstances. The Social
Security Act also imposes significant penalties for false or improper Medicare
and Medicaid billings. Many states have adopted similar laws applicable to any
payor of health care services. We must also comply with federal laws such as
the Health Insurance Portability Act of 1996 (which governs our participation
in managed care programs) and the Food and Drug Administration Act (which
regulates medical devices such as contact lenses). In addition, the Stark
Self-Referral Law restricts referrals for Medicare or Medicaid covered services
where the referring physician has a financial relationship with the service
provider. In some cases, the rental of space constitutes a financial
relationship under this law. Many states have adopted similar self-referral
laws which are not limited to Medicare or Medicaid reimbursed services.
Violations of these laws may result in substantial civil or criminal penalties,
including double and treble civil monetary penalties, and in the case of
federal laws, exclusion from the Medicare and Medicaid programs. These kinds of
exclusions and penalties, if applied to us, could have a material adverse
effect on our business, which could adversely affect the price of our common
stock and our notes, and our ability to repay the notes.

We do not have employment agreements with key management. The departure of key
executives could adversely affect our business.

We depend on the continuing efforts of our executive officers and senior
management. The departure of these individuals in significant numbers could
adversely affect our business and prospects if we are unable to attract and
retain qualified replacements. We do not currently have employment agreements
with any personnel, including key executive officers and management. However,
we offer our executives and management bonus and stock-based incentives related
to our performance.

Failure to have independent vision care professionals available in or near our
vision centers would adversely affect our ability to win managed care and host
store contracts, and could prevent us from operating in some states.

Our business and marketing strategies emphasize the availability of independent
optometrists in close proximity to our vision centers. Typically, we contract
with at least one licensed optometrist to occupy a space in or adjacent to each
of our stores. Additionally, our agreement with Wal-Mart contemplates that we
will make optometrists available at least 48 hours per week if permitted by
law. Some states require that licensed opticians be present when eyeglasses or
contact lenses are fitted or dispensed. In some markets it may be

34



---



##### 



difficult for
us to attract and retain optometrists if our vision centers generate low sales.
Any difficulties or delays in securing the services of vision care
professionals could adversely affect our business and our relationship with our
host stores. Consequences of difficulty or delay could include termination of
our host store licenses for those vision centers, and imposition of legal
sanctions against us, including closure of vision centers without licensed
professionals.

Our retail business may suffer if we fail to keep sufficient licensed
optometrists available in our vision centers, which may adversely affect our
ability to repay our notes and the price of our common stock and notes.

Historically, if there is no licensed optometrist available to give eye exams,
our retail business has suffered. In some markets, it can be difficult to hire
or keep vision care professionals on staff in our vision centers. Failure to
maintain a staff of qualified vision care professionals may cause our customers
to go elsewhere to provide for their optical needs, which would have an adverse
effect on our business.

Our success increasingly depends on our ability to develop and maintain
relationships with managed vision care companies.

An increasing percentage of patients receive health care coverage through
managed care payors. As this trend continues, our success will increasingly
depend on our ability to negotiate contracts with health maintenance
organizations referred to as HMOs, employer groups and other private third
party payors. We cannot assure you that we will be able to establish or
maintain satisfactory relationships with managed care and other third party
payors. Many managed care payors have existing provider structures in place
that they may be unable or unwilling to change. Our inability to enter into
arrangements with managed care payors in the future could have a material
adverse effect on our business.

We have established a network of optometrists and other providers located in or
adjacent to our stores in order to enhance our ability to contract with managed
care payors for both professional services and retail eyewear supplies.
Currently, approximately 11% of our revenues are received from managed care
payors. We expect this percentage to increase in the future. Managed care
contracts include a variety of reimbursement methods, such as capitation and
fee for service or discounts. Our contracts with managed care companies on the
one hand, and with networks of optometrists and other providers on the other,
are subject to federal and state regulations, for example:

Insurance Licensure.Most states impose strict licensure requirements on
companies that engage in the business of insurance, including health insurance
companies and HMOs. Many licensing laws mandate strict financial and other
requirements which we may not be able to meet, were we deemed to be engaging in
the business of insurance. Additionally, the licensure process can be lengthy
and time consuming.

Any Willing Provider Laws.Some states require managed care payors to include
any provider who is willing to abide by the terms of the payors contracts.
Some states also prohibit termination of providers without cause. Other states
are considering similar requirements. These kinds of laws limit our ability to
develop effective managed care provider networks.

Antitrust Laws.A range of antitrust laws apply to us and our provider network.
These laws prohibit anti-competitive conduct, including price-fixing, concerted
refusals to deal, and divisions of markets. We cannot assure you that our
operations will not be challenged on antitrust grounds in the future.

Proposed reforms may affect our earnings and may adversely affect our business.

There have been numerous reform initiatives at the federal and state levels
relating to the payment for and availability of healthcare services. We believe
that these initiatives will continue for the foreseeable future. If adopted,
some of these reforms could adversely affect our earnings, and may adversely
affect our business.

We rely on third parties to pay many of our customers costs.

A significant portion of medical care in the United States is funded by
government and private insurance programs, such as Medicare, Medicaid and
corporate health insurance plans. According to government projections, more
medical beneficiaries who are significant consumers of eye care services will
enroll in managed care organizations. Governmental and private third party
payors are trying to contain medical costs by:



| |  |  | lowering reimbursements,
| | - |  | ------------------------



| |  |  | imposing use restrictions and risk-based compensation arrangements,
| | - |  | -------------------------------------------------------------------



| |  |  | redesigning benefits, and
| | - |  | -------------------------



| |  |  | exploring more cost-effective methods of health care delivery.
| | - |  | --------------------------------------------------------------

35



---



##### 



These cost containment efforts may lead to limitations or reductions in
reimbursement for eye care services, which would adversely affect our future
sales. Additionally, some reimbursement programs require us to collect payment
from third party payors. Our inability to fully collect reimbursable amounts
could adversely affect cash flow generated from operations.

We depend on reliable and timely reimbursement of claims we submit to third
party payors. There are risks we may not be paid on a timely basis, or that we
will be paid at all. Some plans have complex forms to complete. Sometimes our
staff may incorrectly complete forms, delaying our reimbursement. These delays
can hurt our cash flow and also force us to write-off more of these accounts
receivable.

New advances may reduce the need for our products or allow other manufacturers
to produce eyewear at lower cost than we can.

Technological advances in the eyecare industry, such as new surgical procedures
or medical devices, could reduce the demand for our products. Corneal
refractive surgery procedures such as laser surgery, radial-keratotomy and
photo-refractive keratectomy may change the demand for our products. The
development of new drugs may have a similar effect. Technological advances such
as wafer technology and lens casting may make our current lens manufacturing
method uncompetitive or obsolete. The number of individuals electing Lasik and
similar surgical procedures has dramatically increased each year, which could
significantly decrease demand for our goods and services. These and other
medical and technological advances may have a material adverse effect on our
operations.

We have begun to roll out a new point of sale system, which may cause us to
lose sales.

We have begun to roll out a new point of sale system. Although we have not
experienced any problems to date, there are risks that the new system will not
function as planned. In addition, we could lose sales because employees are
unfamiliar with the system or because they have difficulty using it.

A prolonged economic downturn could have an adverse impact on us.

We believe that a weakening economy may cause an increase in the period of time
between repurchases of our retail products by the average consumer, since
customers may see replacement purchases of eyeglasses and contact lenses as
non-essential. An extension of the repurchase cycle for our retail products
would reduce the number of sales of our retail products. Lower sales of our
retail products would reduce our revenues, which could adversely affect both
our ability to pay off the notes and the price of our common stock and notes.

Operating in other countries presents special risks that may affect our results
of operations.

Our Mexican operations face risks substantially similar to those we face in our
Wal-Mart stores, including dependence on the host store and limits on
expansion. We cannot assure you that our Mexican operations will be able to
attain profitability.

Our foreign operations expose us to all of the risks of investing and operating
in foreign countries generally, including:



| |  |  | differing regulatory, political and governmental environments,
| | - |  | --------------------------------------------------------------



| |  |  | currency fluctuations,
| | - |  | ----------------------



| |  |  | high inflation,
| | - |  | ---------------



| |  |  | price controls,
| | - |  | ---------------



| |  |  | restrictions on profit repatriation,
| | - |  | ------------------------------------



| |  |  | generally lower per capita income and spending levels,
| | - |  | ------------------------------------------------------



| |  |  | import duties and value-added taxes, and
| | - |  | ----------------------------------------



| |  |  | difficulties of cross-cultural marketing.
| | - |  | -----------------------------------------

Our Articles of Incorporation, By-Laws and shareholder rights agreement contain
provisions that make it more difficult to effect a change in control of the
company, which may adversely affect the price of our common stock.

Provisions of our Articles of Incorporation and By-Laws could discourage tender
offers or other transactions that would result in shareholders receiving a
premium over the market price for our common stock. These include provisions:



| |  |  | authorizing the issuance of preferred stock without shareholder approval,
| | - |  | -------------------------------------------------------------------------



| |  |  | requiring a supermajority shareholder vote in various circumstances,
| | - |  | --------------------------------------------------------------------



| |  |  | restricting who may call a special meeting of shareholders,
| | - |  | -----------------------------------------------------------



| |  |  | permitting our board of directors to consider constituencies in addition to the shareholders, and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | requiring shareholders to comply with various procedures in
connection with any shareholder proposals or director nominations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

36



---



##### 



Our shareholder rights agreement provides us with a defensive mechanism that
decreases the risk that a hostile acquirer will attempt to take control of us
without negotiating directly with our board of directors. It is meant to
prevent an acquirer from gaining control of us by paying an inadequate price or
by using coercive techniques. The shareholder rights agreement may discourage
acquirers from attempting to purchase us, which may adversely affect the price
of our common stock.

We may not have the ability to raise the funds necessary to finance the change
of control repurchase contemplated by our indenture.

Upon some changes of control of the company, holders of our notes have the
right to require us to repurchase all or a portion of the notes. If a change of
control occurs, we cannot assure you that we will have sufficient funds to
repurchase all of the notes tendered.
Our failure to repurchase tendered notes would be an event of default under our
indenture. Changes of control are also restricted by, and constitute a default
under, our credit facility. If the lender under our credit facility were to
accelerate our obligations due to a default, it would have a priority claim to
the proceeds from the sale of our assets that secure the credit facility.

Our adoption of Fresh Start accounting may make evaluating our financial
position and results of operations, as compared to prior periods, more
difficult.

Due to our emergence from bankruptcy pursuant to the Plan, we implemented
fresh start accounting as of June 2, 2001. In accordance with fresh start
accounting, all assets and liabilities were restated to reflect their
respective fair values. As a result, the consolidated financial statements for
our reorganized company starting on and going forward from June 2, 2001 will
not be comparable to our consolidated financial statements for the periods
prior to June 2, 2001. The change in our accounting principles may make it more
difficult to compare our operations to prior periods.

Our operating history since our emergence from bankruptcy may be insufficient
to evaluate our financial condition based on our financial statements.

Our operating history since we emerged from bankruptcy is limited. Our
financial statements since the implementation of fresh start accounting may
be insufficient to draw proper conclusions about our future ability to generate
profits and to make payments on the notes.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is the potential change in an instruments value caused by, for
example, fluctuations in interest and currency exchange rates. The Companys
primary market risk exposures are interest rate risk and the risk of
unfavorable movements in exchange rates between the U.S. dollar and the Mexican
peso. Monitoring and managing these risks is a continual process carried out by
senior management, which reviews and approves the Companys risk management
policies. We manage market risk on the basis of an ongoing assessment of trends
in interest rates, foreign exchange rates, and economic developments, giving
consideration to possible effects on both total return and reported earnings.
The Companys financial advisors, both internal and external, provide ongoing
advice regarding trends that affect managements assessment. The
Companys operations are not considered to give rise to
significant market risk.

Interest Rate Risk

The Company borrows long-term debt under our credit facility at variable
interest rates. (See Note 8 to Consolidated Financial Statements.) We therefore
incur the risk of increased interest costs if interest rates rise. At December
29, 2001, the Company had no outstanding borrowings under its credit facility. The Companys interest cost under its
Senior Notes is fixed at 12% through the expiration date of the
Senior Notes, due 2009.

Foreign Currency Risk

The Companys division in Mexico operates in a functional currency other than
the U.S. dollar. The net assets of this division are exposed to foreign
currency translation gains and losses, which are included as a component of
accumulated other comprehensive loss in shareholders equity. Such translation
resulted in unrealized income of $144,000 in 2001. Historically, the Company
has not attempted to hedge this equity risk.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company are included as a separate
section of this Report commencing on page F-1.

ITEM 9.    DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

37



---



##### 



(NATIONAL VISION INC LOGO)

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company incorporates by reference herein the section entitled Election of
Directors in the Companys Proxy Statement mailed to shareholders in
connection with the Companys 2002 annual meeting.

ITEM 11.    EXECUTIVE COMPENSATION

The Company incorporates by reference herein the section entitled Compensation
of Executive Officers in the Companys Proxy Statement mailed to shareholders
in connection with the Companys 2002 annual meeting.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company incorporates by reference herein the section entitled Common Stock
Ownership of Certain Beneficial Owners and Management in the Companys Proxy
Statement mailed to shareholders in connection with the Companys 2002 annual
meeting.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 2001, 2000 and 1999, the Company made rent payments of approximately $80,000
for the St. Cloud laboratory/distribution facility, which is owned by Myrel
Neumann, a current director of the Company. The Company paid insurance
premiums of approximately $443,000 in 2000 for insurance policies purchased
through an agency in which J. Smith Lanier, II, a director of the Predecessor
Company during 2000, has a substantial ownership interest. The Audit Committee
(which has ratified the purchase of insurance by the Company from this
insurance agency) and management of the Company believe that these premiums and
rent payments are comparable to those which could have been obtained from
unaffiliated companies.

As part of the bankruptcy proceedings, Myrel Neumann, a Director of the
Company, has approximately $1.0 million of outstanding claims against the
Company, which are included in the Companys disputed claims reserve. These
claims originated with NVIs 1997 purchase of a company owned by Mr. Neumann.

38



---



##### 



ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) and (2) The Consolidated Financial Statements and Schedule of the
Company and its subsidiaries are filed as a separate section of this Report
commencing on page F-1.

(3) We have filed or incorporated by reference the following exhibits:

ExhibitNumber
    
    Description


2.1  First Amended Joint Plan of Reorganization Under Chapter 11, Title 11,
United States Code, filed by Vista Eyecare, Inc. and Certain of its Debtor
Subsidiaries, dated April 13, 2001, incorporated by reference to exhibit 2.1 to
the Companys Current Report on Form 8-K filed with the SEC on June 1, 2001.

2.2  Modification to First Amended Joint Plan of Reorganization Under Chapter
11, Title 11, United States Code, filed by Vista Eyecare, Inc. and Certain of
its Debtor Subsidiaries and First Amended Joint Plan of Reorganization Under
Chapter 11, Title 11, United States Code, Filed by Frame-N-Lens Optical, Inc.;
Midwest Vision, Inc.; New West Eyeworks, Inc., and Certain of Their Debtor
Subsidiaries, dated May 17, 2001, incorporated by reference to Exhibit 2.2 to
the Companys Current Report on Form 8-K filed with the SEC on June 1, 2001.

3.1  Amended and Restated Articles of Incorporation of the Company, dated
April 8, 1992, as amended, incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement on Form 8-A filed with the SEC on August 9,
2001.

3.2   Amended and Restated By-Laws of the Company, incorporated by reference
to the Companys Registration Statement on Form S-1, registration number
33-46645, filed with the Commission on March 25, 1992, and amendments thereto.

4.1   Form of Common Stock Certificate, incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form 8-A filed with the SEC on
August 9, 2001.

4.2   Rights Agreement dated as of January 17, 1997 between the Company and
Wachovia Bank of North Carolina, N.A., incorporated by reference to the
Companys Registration Statement on Form 8-A filed with the Commission on
January 17, 1997.

4.3  Amendment to Rights Agreement, dated as of March 1, 1998, between the
Company and Wachovia Bank of North Carolina, N.A., incorporated by reference to
Exhibit 10.2 to the Companys Registration Statement on Form 8-A filed with the
SEC on March 24, 1998.

4.4  Indenture, dated as of June 15, 2001, between the Company and State
Street Bank and Trust Company, as trustee, incorporated by reference to Exhibit
TC3 to the Companys Application for Qualification of Indenture on Form T-3
filed with the SEC on May 31, 2001.

4.5  First Amendment of Indenture, dated as of July 6, 2001, between the
Company and State Street Bank and Trust Company, as trustee, incorporated by
reference to Exhibit 4.2 to the Companys Registration Statement on Form 8-A
filed with the SEC on August 9, 2001.

4.6  Registration Rights Agreement, dated as of May 31, 2001, among the
Company and the Holders (as defined therein) of registrable securities,
incorporated by reference to Exhibit 4.8 to the Companys Amendment to
Quarterly Report on Form 10-Q/A filed with the SEC on August 22, 2001.

4.7  Amendment to Registration Rights Agreement, dated as of August 7, 2001,
among the Company and the Holders (as defined therein) of registrable
securities, incorporated by reference to Exhibit 4.9 the Companys Amendment to
Quarterly Report on Form 10-Q/A filed with the SEC on August 22, 2001.

4.8  Lock-Up Agreement, dated May 31, 2001, between Scudder High Yield Series
- Scudder High Yield Fund and the Company, incorporated by reference
to the Companys Form 10-K for the fiscal year ended December
29, 2001.

4.9  Lock-Up Agreement, dated May 31, 2001, between U.S. Bancorp Investments,
Inc. and the Company, incorporated by reference
to the Companys Form 10-K for the fiscal year ended December
29, 2001.

4.10  Second Amendment of Indenture, dated as of December 7, 2001, between the
Company and State Street Bank and Trust Company, as trustee.

39



---



##### 



10.1  Sublease Agreement, dated December 16, 1991, by and between Wal-Mart
Stores, Inc. and the Company, incorporated by reference to the Companys
Registration Statement on Form S-1, registration number 33-46645, filed with
the Commission on March 25, 1992, and amendments thereto.

10.2  Form indemnification agreement for directors and executive officers of
the Company, incorporated by reference to the Companys Form 10-Q for the
quarterly period ended June 30, 2001.

10.3  Vision Center Master License Agreement, dated as of June 16, 1994, by
and between Wal-Mart Stores, Inc. and the Company, incorporated by reference to
the Companys Form 10-Q for the quarterly period ended September 30, 1994.
[Portions of Exhibit 10.3 have been omitted pursuant to an order for
confidential treatment granted by the Commission. The omitted portions have
been filed separately with the Commission.]

10.4++  Split Dollar Life Insurance Agreement, dated as of November 3, 1994,
among the Company, A. Kimbrough Davis, as Trustee, and James W. Krause,
incorporated by reference to the Companys Form 10-K for the fiscal year ended
December 31, 1994.

10.5++  Level IV Management Incentive Plan, incorporated by reference to the
Companys Form 10-K for the fiscal year ended December 31, 1994.

10.6  Agreement dated as of November 23, 1995 by and between Mexican Vision
Associates Operadora, S. de R.L. de C.V. and Wal-Mart de Mexico, S.A. de C.V.
in original Spanish and an uncertified English translation, incorporated by
reference to the Companys Form 10-K for the fiscal year ended December 30,
1995. [Portions of Exhibit 10.6 have been omitted pursuant to a request for
confidential treatment filed with the Commission. The omitted portions have
been filed separately with the Commission.]

10.7++  Executive Relocation Policy, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended March 30, 1996.

10.8++  Restated Stock Option and Incentive Award Plan, incorporated by
reference to the Companys Form 10-Q for the quarterly period ended June 29,
1996.

10.9++  First Amendment to Restated Stock Option and Incentive Award Plan,
incorporated by reference to the Companys Form 10-Q for the quarterly period
ended March 29, 1997.

10.11++  Form Restricted Stock Award, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended March 29, 1997.

10.12++  Restated Non-Employee Director Stock Option Plan, incorporated by
reference to the Companys Form 10-Q filed on June 28, 1997.

10.18  Loan and Security Agreement dated as of May 30, 2001, between the
Company and Fleet Capital Corporation, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended June 30, 2001.

21  Subsidiaries of the Registrant, incorporated by reference to the Companys
Form 10-K for the fiscal year ended January 1, 2000.

23.1**  Notice Regarding Consent
of Arthur Andersen LLP.

23.2**  Consent by Deloitte & Touche LLP.

99.1**  Letter Pursuant to Temporary Note 3T.

99.2**   Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|** |  | Filed with this Form 10-K/A.
|-- |  | ----------------------------

++ Management contract or compensatory plan or arrangement in which a director
or named executive officer participates.

(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

40



---



##### 



(NATIONAL VISION, INC. LOGO)

NATIONAL VISION, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FOR THE SEVEN MONTHS ENDED DECEMBER 29, 2001,
THE FIVE MONTHS ENDED JUNE 2, 2001, AND
FOR THE YEARS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
TOGETHER WITH AUDITORS REPORT

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

The following consolidated financial statements and schedule of the registrant
and its subsidiaries are submitted herewith in response to Item 8 and Item
14(a)1 and to Item 14(a)2, respectively.

|                                                                                                                                                                                                        |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                                                        |  | Page
|                                                                                                                                                                                                        |  |     
|Reports of Independent Auditors                                                                                                                                                                         |  |      | F-2 | 
|Consolidated Balance Sheets as of December 29, 2001 (Restated) and
December 30, 2000                                                                                                                    |  |      | F-4 | 
|Consolidated Statements of Operations for the Seven Months Ended
December 29, 2001, the Five Months Ended June 2, 2001 (Restated), and the
Years Ended December 30, 2000 and January 1, 2000            |  |      | F-5 | 
|Consolidated Statements of Shareholders Equity / (Deficit)
for the Seven Months Ended December 29, 2001, the Five Months
Ended June 2, 2001, and the Years Ended December 30, 2000 and
January 1, 2000 |  |      | F-6 | 
|Consolidated Statements of Cash Flows for the Seven Months Ended
December 29, 2001 (Restated), the Five Months Ended June 2, 2001 (Restated), and the
Years Ended December 30, 2000 and January 1, 2000 |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                                                                                                                              |  |      | F-8 | 
|Schedule II, Valuation and Qualifying Accounts                                                                                                                                                          |  |      | S-1 | 

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable, or have been disclosed in the notes
to consolidated financial statements and, therefore, have been omitted.

F-1



---



##### 



INDEPENDENT AUDITORS REPORT

Board of Directors and Shareholders
National Vision, Inc.
Lawrenceville, Georgia

We have audited the accompanying consolidated balance sheet of National Vision,
Inc. and subsidiaries as of December 29, 2001 (Successor Company balance
sheet), and the related consolidated statements of operations, shareholders
equity, and cash flows for the seven months ended December 29, 2001
(Successor Company operations), and the five months ended June 2, 2001
(Predecessor Company operations). Our audit also included the 2001 financial
statement schedule listed in the Index on page F-1. These financial
statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on the
2001 financial statements and financial statement schedule based on our audit.
The financial statements and financial statement schedule as of December 30,
2000 (Predecessor Company balance sheet) and for each of the years in the
two-year period then ended (Predecessor Company operations) were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements (which included an
explanatory paragraph for the Companys emergence from
Chapter 11 bankruptcy and adoption of fresh start accounting in
accordance with AICPA Statement of Position 90-7,
Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code), and stated that such 2000 and
1999 financial statement schedules, when considered in relation to the 2000 and
1999 basic financial statements taken as a whole, presented fairly, in all
material respects, the information set forth therein, in their report dated
February 25, 2002. Those auditors reported on such financial
statements prior to the restatement referred to below.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

As discussed in Note 4 to the financial statements, on May 18, 2001, the
Bankruptcy Court entered an order confirming the Predecessor
Companys plan of reorganization, which
became effective after the close of business on May 31, 2001. Accordingly, the
accompanying financial statements have been prepared in conformity with AICPA
Statement of Position 90-7, Financial Reporting for Entities in Reorganization
Under the Bankruptcy Code, for the successor company as a new entity with
assets, liabilities, and a capital structure having carrying values not
comparable with prior periods as described in Note 4.

In our opinion, the Successor Company consolidated financial statements present
fairly, in all material respects, the financial position of National Vision,
Inc. and subsidiaries as of December 29, 2001, and the results of their
operations and their cash flows for the period from June 3, 2001 to December
29, 2001, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the 2001 financial
statement schedule, when considered in relation to the 2001 basic
consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein. Further, in our opinion, the Predecessor Company
financial statements referred to above present fairly, in all material
respects, the Predecessor Companys results of their operations and their cash
flows for the period December 31, 2000 to June 2, 2001, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 17, the accompanying 2001 financial statements have been
restated to (i) reflect a balance sheet reclassification resulting in a current
deferred tax asset and a non-current net deferred tax liability as of December
29, 2001, (ii) correctly reflect in Note 11 the components of
deferred income tax
assets and liabilities (including the valuation allowance) as of December 29,
2001; (iii) correctly reflect the balance sheet classification of senior notes between
short-term and long-term liabilities as of December 29, 2001, (iv) correctly
reflect the balance sheet classification of reserves for certain assets from accrued expenses
and other current liabilities to accounts receivable, property and equipment
and other assets and deferred costs as of December 29, 2001, and (v) correctly
reflect the statement of operations classification of certain amounts from reorganization expense to
cost of goods sold and selling, general & administrative expense in the five
months ended June 2, 2001.

DELOITTE & TOUCHE LLP 
Atlanta, Georgia
May 29, 2003

F-2



---



##### 



The following is a copy of the previously issued report of Arthur Andersen LLP,
which has ceased operations and which report has not been reissued in
connection with this Form 10-K/A, on the consolidated balance sheets of
National Vision, Inc. and subsidiaries at December 29, 2001 and December 30,
2000 and the related consolidated statements of operations, changes in
shareholders equity (deficit) and cash flows for the seven months ended
December 29, 2001 (successor company), the five months ended June 2, 2001
(predecessor company), and for the years ended December 30, 2000 and January 1,
2000 (predecessor company). Arthur Andersen LLP reported on such financial
statements prior to the restatement discussed in Note 17.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To National Vision, Inc. and Subsidiaries:

We have audited the accompanying balance sheets of NATIONAL VISION, INC. (a
Georgia corporation) AND SUBSIDIARIES as of December 29, 2001 (Successor
Company) and Vista Eyecare, Inc. as of December 30, 2000 (Predecessor Company)
and the related consolidated statements of operations, shareholders
equity/(deficit) and cash flows for the seven months ended December 29, 2001
(Successor Company), the five months ended June 2, 2001 (Predecessor Company),
and for the years ended December 30, 2000 and January 1, 2000 (Predecessor
Company). These financial statements and schedule referred to below are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 3, effective May 31, 2001, the Company was reorganized
under a plan confirmed by the United States Bankruptcy Court for the Northern
District of Georgia and adopted a new basis of accounting whereby all remaining
assets and liabilities were adjusted to their estimated fair values.
Accordingly, the consolidated financial statements for periods subsequent to
the reorganization are not comparable to the consolidated financial statements
presented for prior periods.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Vision, Inc. and
subsidiaries as of December 29, 2001 and of Vista Eyecare, Inc. and
subsidiaries as of December 30, 2000, and the results of their operations and
their cash flows for the seven months ended December 29, 2001, the five months
ended June 2, 2001, and for the years ended December 30, 2000 and January 1,
2000 in conformity with accounting principles generally accepted in the United
States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and
qualifying accounts listed in the index to consolidated financial statements is
presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 25, 2002

F-3



---



##### 



NATIONAL VISION, INC.
CONSOLIDATED BALANCE SHEETS
December 29, 2001 (Restated) and December 30, 2000
(In thousands, except share information)

|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |         |          |  
|------------------------------------------------ | -------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------- | ------------ | ------ | - | ----------- | -------- | ------- | -------- | -
|                                                 |                                                                      |                                                                                                                      |         | Successor    |        |   | Predecessor
|                                                 |                                                                      |                                                                                                                      |         |              |        |  
|                                                 |                                                                      |                                                                                                                      |         | 2001         |        |   |            
|                                                 |                                                                      |                                                                                                                      |         | (As Restated |        |   |             |          |        
|                                                 |                                                                      |                                                                                                                      |         | see
Note 17) |        |   | 2000       
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |            
|ASSETS                                          
|CURRENT ASSETS:                                  |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | Cash and cash equivalents                                            |                                                                                                                      | $       | 9,846        |        |   |             | $        | 8,066   |         
|                                                 | Accounts receivable (net of allowance: 2001 - $2,377; 2000 - $5,744) |                                                                                                                      |         | 3,908        |        |   |             |          | 10,119  |         
|                                                 | Inventories                                                          |                                                                                                                      |         | 18,621       |        |   |             |          | 31,478  |         
|                                                 | Other current assets                                                 |                                                                                                                      |         | 583          |        |   |             |          | 1,590   |         
|                                                 | Deferred income tax asset                                            |                                                                                                                      |         | 3,681        |        |   |             |          |        |         
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|Total current assets                             |                                                                      |                                                                                                                      | 36,639  |              |        |   |             | 51,253   |        
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|PROPERTY AND EQUIPMENT:                          |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | Equipment                                                            |                                                                                                                      |         | 17,049       |        |   |             |          | 47,187  |         
|                                                 | Furniture and fixtures                                               |                                                                                                                      |         | 6,878        |        |   |             |          | 23,272  |         
|                                                 | Leasehold improvements                                               |                                                                                                                      |         | 6,008        |        |   |             |          | 18,664  |         
|                                                 | Construction in progress                                             |                                                                                                                      |         | 1,061        |        |   |             |          | 540     |         
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 |                                                                      |                                                                                                                      | 30,996  |              |        |   |             | 89,663   |        
|                                                 | Less accumulated depreciation                                        |                                                                                                                      |         | (6,996       | )      |   |             |          | (60,092 | )       
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | Net property and equipment                                           |                                                                                                                      |         | 24,000       |        |   |             |          | 29,571  |         
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|OTHER ASSETS AND DEFERRED COSTS                  |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | (net of accumulated amortization: 2001 - $259; 2000 - $4,833)        |                                                                                                                      |         | 1,332        |        |   |             |          | 9,679   |         
|DEFERRED INCOME TAX ASSET                        |                                                                      |                                                                                                                      |        |              |        |   |             | 385      |        
|INTANGIBLE VALUE OF CONTRACTUAL RIGHTS           |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | (net of accumulated amortization: 2001 - $4,360)                     |                                                                                                                      |         | 109,246      |        |   |             |          |        |         
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 |                                                                      | $                                                                                                                    | 171,217 |              |        |   | $           | 90,888   |        
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|LIABILITIES AND SHAREHOLDERS EQUITY / (DEFICIT) |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|LIABILITIES NOT SUBJECT TO COMPROMISE:           |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|CURRENT LIABILITIES:                             |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 | Accounts payable                                                     |                                                                                                                      | $       | 3,935        |        |   |             | $        | 783     |         
|                                                 | Accrued expenses and other current liabilities                       |                                                                                                                      |         | 24,712       |        |   |             |          | 19,693  |         
|                                                 | Current portion of long-term debt                                    |                                                                                                                      |         | 1,597        |        |   |             |          |        |         
|                                                 | Revolving credit facility and term loan                              |                                                                                                                      |         |             |        |   |             |          | 12,911  |         
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|Total current liabilities                        |                                                                      |                                                                                                                      | 30,244  |              |        |   |             | 33,387   |        
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|DEFERRED INCOME TAX LIABILITY                    |                                                                      |                                                                                                                      | 3,296   |              |        |   |             |         |        
|SENIOR NOTES                                     |                                                                      |                                                                                                                      | 118,403 |              |        |   |             |         |        
|LIABILITIES SUBJECT TO COMPROMISE (Note 4)       |                                                                      |                                                                                                                      |        |              |        |   |             | 170,824  |        
|COMMITMENTS AND CONTINGENCIES (Note 10)          |                                                                      |                                                                                                                      |        |              |        |   |             |         |        
|SHAREHOLDERS EQUITY / (DEFICIT):                |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 |                                                                      | Preferred stock, $1 par value; 5,000,000 shares authorized; none issued                                              |         |              |       |   |             |          |         |         |  
|                                                 |                                                                      | Common stock, $0.01 par value, 100,000,000 shares authorized; 21,169,103
shares issued and outstanding (Predecessor) |         |              |       |   |             |          |         | 211      |  
|                                                 |                                                                      | Common stock, $0.01 par value; 10,000,000 shares authorized, 5,000,000
shares issued and outstanding (Successor)     |         |              | 50     |   |             |          |         |         |  
|                                                 |                                                                      | Additional paid-in capital                                                                                           |         |              | 24,940 |   |             |          |         | 47,387   |  
|                                                 |                                                                      | Retained deficit                                                                                                     |         |              | (5,860 | ) |             |          |         | (156,848 | )
|                                                 |                                                                      | Accumulated other comprehensive income / (loss)                                                                      |         |              | 144    |   |             |          |         | (4,073   | )
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|Total shareholders equity / (deficit)           |                                                                      |                                                                                                                      | 19,274  |              |        |   |             | (113,323 | )      
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        
|                                                 |                                                                      | $                                                                                                                    | 171,217 |              |        |   | $           | 90,888   |        
|                                                 |                                                                      |                                                                                                                      |         |              |        |   |             |          |        

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As
a result, all assets and liabilities were restated to reflect their fair
values. The consolidated financial statements of the new reporting entity (the
Successor) are not comparable to the reporting entity prior to the Companys
emergence from Chapter 11 (the Predecessor).

See notes to the consolidated financial statements.

F-4



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the seven months ended December 29, 2001,
the five months ended June 2, 2001 (Restated), and for
the years ended December 30, 2000 and January 1, 2000
(In thousands, except per share information)

|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | - | ----------------- | ----- | - | -------------- |  | ------------ | ----- | ---------- | ----------- | -------- | ---- |  | - | -------- | ----- | - | - | ------- | ----- | -
|                                                                                                             |                                                                   |   | Successor         |       |   | Predecessor   
|                                                                                                             |                                                                   |   |                   |       |   |               
|                                                                                                             |                                                                   |   |                   |       |   | Five Months    |  |             
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              | Ended |            | Years Ended
|                                                                                                             |                                                                   |   | Seven Months      |       |   | June 2, 2001   |  |             
|                                                                                                             |                                                                   |   | Ended             |       |   | (As Restated - |  | December 30, |       | January 1,
|                                                                                                             |                                                                   |   | December 29, 2001 |       |   | see Note 17)   |  | 2000         |       | 2000      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |           
|Net sales                                                                                                    |                                                                   | $ | 135,543           |       |   |                |  |              |       |            | $           | 120,557  |      |  | $ | 307,694  |       |   | $ | 329,055 |      
|Cost of goods sold                                                                                           |                                                                   |   | 61,488            |       |   |                |  |              |       |            |             | 57,404   |      |  |   | 143,458  |       |   |   | 147,768 |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Gross profit                                                                                                 |                                                                   |   | 74,055            |       |   |                |  |              |       |            |             | 63,153   |      |  |   | 164,236  |       |   |   | 181,287 |      
|Selling, general & administrative expense                                                                    |                                                                   |   | 71,526            |       |   |                |  |              |       |            |             | 68,377   |      |  |   | 166,364  |       |   |   | 177,162 |      
|Impairment of long-lived assets                                                                              |                                                                   |   |                  |       |   |                |  |              |       |            |             |         |      |  |   | 2,684    |       |   |   | 1,952   |      
|Restructuring expense                                                                                        |                                                                   |   |                  |       |   |                |  |              |       |            |             |         |      |  |   | 1,601    |       |   |   |        |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Operating income / (loss)                                                                                    |                                                                   |   | 2,529             |       |   |                |  |              |       |            |             | (5,224   | )    |  |   | (6,413   | )     |   |   | 2,173   |      
|Interest expense, net                                                                                        |                                                                   |   | 8,389             |       |   |                |  |              |       |            |             | 1,150    |      |  |   | 7,723    |       |   |   | 19,329  |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Loss before reorganization items and taxes                                                                   |                                                                   |   | (5,860            | )     |   |                |  |              |       |            |             | (6,374   | )    |  |   | (14,136  | )     |   |   | (17,156 | )    
|Reorganization expense/ (gain) (Note 4)                                                                      |                                                                   |   |                  |       |   |                |  |              |       |            |             | (102,515 | )    |  |   | 121,539  |       |   |   |        |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Earnings
/ (loss) before taxes, extraordinary item and
cumulative effect of a change in accounting principle |                                                                   |   | (5,860            | )     |   |                |  |              |       |            |             | 96,141   |      |  |   | (135,675 | )     |   |   | (17,156 | )    
|Income tax expense                                                                                           |                                                                   |   |                  |       |   |                |  |              |       |            |             |         |      |  |   |         |       |   |   |        |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle    |                                                                   |   | (5,860            | )     |   |                |  |              |       |            |             | 96,141   |      |  |   | (135,675 | )     |   |   | (17,156 | )    
|Extraordinary (loss) / gain, net (Note 9)                                                                    |                                                                   |   |                  |       |   |                |  |              |       |            |             | 17,182   |      |  |   | (827     | )     |   |   | (406    | )    
|Cumulative effect, net (Note 2)                                                                              |                                                                   |   |                  |       |   |                |  |              |       |            |             |         |      |  |   | (3,378   | )     |   |   |        |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Net earnings / (loss)                                                                                        |                                                                   | $ | (5,860            | )     |   |                |  |              |       |            | $           | 113,323  |      |  | $ | (139,880 | )     |   | $ | (17,562 | )    
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|Basic and diluted earnings / (loss) per share:                                                               |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|                                                                                                             | Earnings / (loss) before extraordinary item
and cumulative effect |   | $                 | (1.17 | ) |                |  |              |       |            |             | $        | 4.54 |  |   | $        | (6.41 | ) |   | $       | (0.81 | )
|                                                                                                             | Extraordinary (loss) / gain, net                                  |   |                   |      |   |                |  |              |       |            |             |          | 0.81 |  |   |          | (0.04 | ) |   |         | (0.02 | )
|                                                                                                             | Cumulative effect, net                                            |   |                   |      |   |                |  |              |       |            |             |          |     |  |   |          | (0.16 | ) |   |         |      |  
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|                                                                                                             | Net earnings / (loss) per share                                   |   | $                 | (1.17 | ) |                |  |              |       |            |             | $        | 5.35 |  |   | $        | (6.61 | ) |   | $       | (0.83 | )
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       | January 1,
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       | 2000      
|                                                                                                             |                                                                   |   |                   |       |   |                |  |              |       |           
|Pro Forma amounts as if the new revenue recognition policy was applied
retroactively (See Note 2):          
|Net loss before extraordinary item                                                                           |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   | $ | (17,239 | )    
|Net loss                                                                                                     |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   | $ | (17,645 | )    
|Net loss per share  basic and diluted:                                                                      |                                                                   |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   |         |      
|                                                                                                             | Net loss before extraordinary item                                |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   | $       | (0.82 | )
|                                                                                                             | Net loss                                                          |   |                   |       |   |                |  |              |       |            |             |          |      |  |   |          |       |   |   | $       | (0.84 | )

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As
a result, all assets and liabilities were restated to reflect their fair
values. The consolidated financial statements of the new reporting entity (the
Successor) are not comparable to the reporting entity prior to the Companys
emergence from Chapter 11 (the Predecessor).

See notes to the consolidated financial statements.

F-5



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY / (DEFICIT)
For the seven months ended December 29, 2001,
the five months ended June 2, 2001, and for
the years ended December 30, 2000 and January 1, 2000
(In thousands, except share information)

|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|------------------------------------------------ |  | ------------ | ----------- | ---------- |  | --------- | ---- | ------------- |  | --------------- | ------- | ------ |  | ----- | -------- | - |  | ----------- | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  | Accumulated |        |   |  |   |          |   |  |  
|                                                 |  | Common Stock |             | Additional |  | Retained  |      | Other         |  |                 |         |        |  |       |          |  
|                                                 |  |              |             | Paid-in    |  | Earnings/ |      | Comprehensive |  | Comprehensive   |         |        |  |      
|                                                 |  | Shares       |             | Amount     |  | Capital   |      | (Deficit)     |  | Income / (loss) |         | Income |  | Total
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |      
|Predecessor Company:                             |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|BALANCE, January 2, 1999                         |  |              | 21,166,612  |            |  | $         | 211  |               |  | $               | 47,195  |        |  | $     | 594      |   |  | $           | (4,073 | ) |  |   |          |   |  | $ | 43,927   |  
|Restricted stock                                 |  |              |             |            |  |           |      |               |  |                 | 136     |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   | 136      |  
|Exercise of stock options                        |  |              | 12,491      |            |  |           |      |               |  |                 | 56      |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   | 56       |  
|Net loss                                         |  |              |             |            |  |           |      |               |  |                 |         |        |  |       | (17,562  | ) |  |             |        |   |  | $ | (17,562  | ) |  |   | (17,562  | )
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Comprehensive income                             |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  | $ | (17,562  | ) |  |   |          |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|BALANCE, January 1, 2000                         |  |              | 21,179,103  |            |  |           | 211  |               |  |                 | 47,387  |        |  |       | (16,968  | ) |  |             | (4,073 | ) |  |   |          |   |  |   | 26,557   |  
|Cancellation of shares                           |  |              | (10,000     | )          |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Net loss                                         |  |              |             |            |  |           |      |               |  |                 |         |        |  |       | (139,880 | ) |  |             |        |   |  | $ | (139,880 | ) |  |   | (139,880 | )
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Comprehensive income                             |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  | $ | (139,880 | ) |  |   |          |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|BALANCE, December 30, 2000                       |  |              | 21,169,103  |            |  |           | 211  |               |  |                 | 47,387  |        |  |       | (156,848 | ) |  |             | (4,073 | ) |  |   |          |   |  |   | (113,323 | )
|Net income through June 2, 2001                  |  |              |             |            |  |           |      |               |  |                 |         |        |  |       | 113,323  |   |  |             |        |   |  | $ | 113,323  |   |  |   | 113,323  |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Comprehensive income                             |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  | $ | 113,323  |   |  |   |          |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Elimination of prior equity                      |  |              | (21,169,103 | )          |  |           | (211 | )             |  |                 | (47,387 | )      |  |       | 43,525   |   |  |             | 4,073  |   |  |   |          |   |  |   |         |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|BALANCE, June 2, 2001                            |  |              | 0           |            |  | $         |     |               |  | $               |        |        |  | $     |         |   |  | $           |       |   |  |   |          |   |  | $ |         |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Successor Company:                               |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Distribution of new common
shares  June 2, 2001 |  |              | 5,000,000   |            |  | $         | 50   |               |  | $               | 24,950  |        |  | $     |         |   |  | $           |       |   |  |   |          |   |  | $ | 25,000   |  
|Stock issuance costs                             |  |              |             |            |  |           |      |               |  |                 | (10     | )      |  |       |          |   |  |             |        |   |  |   |          |   |  |   | (10      | )
|Net loss
June 3 - December 29, 2001              |  |              |             |            |  |           |      |               |  |                 |         |        |  |       | (5,860   | ) |  |             |        |   |  | $ | (5,860   | ) |  |   | (5,860   | )
|Cumulative translation adjustment                |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             | 144    |   |  |   | 144      |   |  |   | 144      |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|Comprehensive income                             |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  | $ | (5,716   | ) |  |   |          |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  
|BALANCE, December 29, 2001                       |  |              | 5,000,000   |            |  | $         | 50   |               |  | $               | 24,940  |        |  | $     | (5,860   | ) |  | $           | 144    |   |  |   |          |   |  | $ | 19,274   |  
|                                                 |  |              |             |            |  |           |      |               |  |                 |         |        |  |       |          |   |  |             |        |   |  |   |          |   |  |   |          |  

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As
a result, all assets and liabilities were restated to reflect their fair
values. The consolidated financial statements of the new reporting entity (the
Successor) are not comparable to the reporting entity prior to the Companys
emergence from Chapter 11 (the Predecessor).

See notes to the consolidated financial statements.

F-6



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the seven months ended December 29, 2001, (Restated)
the five months ended June 2, 2001, (Restated) and for
the years ended December 30, 2000 and January 1, 2000
(In thousands)

|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |         |  
|------------------------------------------------------ | ---------------------------------------------- | - | ----------------- | -------- | - | -------------- | - | ----------------- | -------- | --------------- | - | -------- | -------- | - | - | ------- | ------- | -
|                                                       |                                                |   | Successor         |          |   | Predecessor   
|                                                       |                                                |   |                   |          |   |               
|                                                       |                                                |   | Seven Months      |          |   | Five Months    |   |                   |          |                 |   |          |          |  
|                                                       |                                                |   | Ended             |          |   | Ended          |   | Year Ended        |          | Year Ended     
|                                                       |                                                |   | December 29, 2001 |          |   | June 2, 2001   |   | December 30, 2000 |          | January 1, 2000
|                                                       |                                                |   | (As restated
    |          |   | (As restated
 |   |                   |          |                
|                                                       |                                                |   | See Note
17)      |          |   | See Note
17)   |   |                   |          |                
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                
|Cash flow from operating activities:                   |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Net
earnings / (loss)                                  |                                                | $ | (5,860            | )        |   |                | $ | 113,323           |          |                 | $ | (139,880 | )        |   | $ | (17,562 | )      
|Adjustments
to reconcile cash to net earnings/ (loss): |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|                                                       | Depreciation & amortization                    |   |                   | 11,425   |   |                |   |                   | 4,808    |                 |   |          | 17,526   |   |   |         | 18,602  |  
|                                                       | Impairment of long-lived assets                |   |                   |         |   |                |   |                   |         |                 |   |          | 2,684    |   |   |         | 1,952   |  
|                                                       | Restructuring reserve                          |   |                   |         |   |                |   |                   |         |                 |   |          | 1,601    |   |   |         |        |  
|                                                       | Reorganization items                           |   |                   |         |   |                |   |                   | 11,748   |                 |   |          | 121,539  |   |   |         |        |  
|                                                       | Cumulative effect                              |   |                   |         |   |                |   |                   |         |                 |   |          | 3,378    |   |   |         |        |  
|                                                       | Fresh start adjustments                        |   |                   |         |   |                |   |                   | (114,263 | )               |   |          |         |   |   |         |        |  
|                                                       | Extraordinary item                             |   |                   |         |   |                |   |                   | (17,182  | )               |   |          | 827      |   |   |         | 406     |  
|                                                       | Other                                          |   |                   | 256      |   |                |   |                   | (259     | )               |   |          | 1,181    |   |   |         | (459    | )
|Changes in operating assets & liabilities:             |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|                                                       | Accounts receivable                            |   |                   | 636      |   |                |   |                   | 5,177    |                 |   |          | (1,480   | ) |   |         | (281    | )
|                                                       | Inventories                                    |   |                   | 1,245    |   |                |   |                   | 4,083    |                 |   |          | 5,026    |   |   |         | (2,703  | )
|                                                       | Other current assets                           |   |                   | 142      |   |                |   |                   | 597      |                 |   |          | 1,171    |   |   |         | 138     |  
|                                                       | Accounts payable                               |   |                   | 2,187    |   |                |   |                   | 1,210    |                 |   |          | 9,351    |   |   |         | (1,733  | )
|                                                       | Accrued expenses and other current liabilities |   |                   | (5,218   | ) |                |   |                   | 322      |                 |   |          | (4,335   | ) |   |         | (2,069  | )
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Total adjustments                                      |                                                |   | 10,673            |          |   |                |   | (103,759          | )        |                 |   | 158,469  |          |   |   | 13,853  |        
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Net cash provided by / (used in) operating activities  |                                                |   | 4,813             |          |   |                |   | 9,564             |          |                 |   | 18,589   |          |   |   | (3,709  | )      
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Cash flow from investing activities:                   |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|                                                       | Proceeds from sale of property & equipment     |   |                   |         |   |                |   |                   | 5,656    |                 |   |          |         |   |   |         | 955     |  
|                                                       | Purchase of property & equipment               |   |                   | (2,750   | ) |                |   |                   | (2,084   | )               |   |          | (5,379   | ) |   |         | (12,704 | )
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Net cash (used in) / provided by investing activities  |                                                |   | (2,750            | )        |   |                |   | 3,572             |          |                 |   | (5,379   | )        |   |   | (11,749 | )      
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Cash flow from financing activities:                   |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|                                                       | Advances on revolver                           |   |                   | 112,855  |   |                |   |                   | 125,063  |                 |   |          | 305,751  |   |   |         | 79,238  |  
|                                                       | Payments on revolver                           |   |                   | (115,855 | ) |                |   |                   | (134,975 | )               |   |          | (312,132 | ) |   |         | (65,946 | )
|                                                       | Deferred financing costs                       |   |                   | (286     | ) |                |   |                   | (125     | )               |   |          | (715     | ) |   |         | (811    | )
|                                                       | Stock issuance costs                           |   |                   | (10      | ) |                |   |                   |         |                 |   |          |         |   |   |         |        |  
|                                                       | Proceeds from exercise of stock options        |   |                   |         |   |                |   |                   |         |                 |   |          |         |   |   |         | 56      |  
|                                                       | Principal payments on other long-term debt     |   |                   | (86      | ) |                |   |                   |         |                 |   |          | (934     | ) |   |         | (1,265  | )
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Net cash (used in) / provided by financing activities  |                                                |   | (3,382            | )        |   |                |   | (10,037           | )        |                 |   | (8,030   | )        |   |   | 11,272  |        
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Net
(decrease) / increase in cash                      |                                                |   | (1,319            | )        |   |                |   | 3,099             |          |                 |   | 5,180    |          |   |   | (4,186  | )      
|Cash, beginning of period                              |                                                |   | 11,165            |          |   |                |   | 8,066             |          |                 |   | 2,886    |          |   |   | 7,072   |        
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        
|Cash, end of period                                    |                                                | $ | 9,846             |          |   |                | $ | 11,165            |          |                 | $ | 8,066    |          |   | $ | 2,886   |        
|                                                       |                                                |   |                   |          |   |                |   |                   |          |                 |   |          |          |   |   |         |        

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As
a result, all assets and liabilities were restated to reflect their fair
values. The consolidated financial statements of the new reporting entity (the
Successor) are not comparable to the reporting entity prior to the Companys
emergence from Chapter 11 (the Predecessor).

See notes to the consolidated financial statements.

F-7



---



##### 



NATIONAL VISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

National Vision, Inc. formerly known as Vista Eyecare, Inc. (the Company) is
engaged in the retail sale of optical goods and services. The Company is
largely dependent on Wal-Mart Stores, Inc. (Wal-Mart) for continued operation
of vision centers which generate a significant portion of the Companys
revenues (See Note 6).

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The Company operates on a 52/53 week retail
calendar with the fiscal year ending on the Saturday closest to December 31.
Pursuant to such calendar, financial information for fiscal 2001, 2000 and 1999
is presented for the respective 52-week periods. Due to various statutory and
other considerations, international operations do not operate on this 52/53
week calendar. To allow for more timely consolidation and reporting,
international operations are reported using a fiscal year ending November 30.

Fresh Start Accounting

Upon emergence from bankruptcy, the Company adopted fresh start accounting in
accordance with AICPA Statement of Position 90-7 (SOP 90-7). As a result,
all assets and liabilities were restated to reflect their respective fair
values. The consolidated financial statements after emergence are those of a
new reporting entity (the Successor) and are not comparable to the financial
statements of the pre-confirmation company (the Predecessor). A black line
has been drawn in the financial statements to distinguish Predecessor and
Successor Company results. (See Note 4  Bankruptcy Proceedings and Fresh
Start Adjustments.) SOP 90-7 also requires that any changes in accounting
principles required within twelve months of fresh start accounting, must be
adopted at the time of implementation of fresh start accounting.

The Companys plan of reorganization in the
Chapter 11 Cases provides that, as
claims of creditors are resolved, the Company will make periodic distributions
of its new common stock and notes. As of March 1, 2002, the
Company has made five
such distributions, for a total of 4,190,000 shares of new common stock and
$100.9 million face amount of new notes. The balance of 810,000 shares of new
common stock and $19.1 million face amount of new notes are part of a disputed
claim reserve on deposit with the Companys outside trustee and will be distributed as
and when disputed claims are resolved. Because the disputed claim reserve
resides with a third-party trustee, the common stock and senior notes remaining
in the disputed claim reserve are considered issued and outstanding for
accounting purposes. Interest expense on the senior notes remaining in the
claim reserve are accrued for and paid to the trustee for ultimate distribution
to claimholders when disputed claims are resolved.

Revenue Recognition

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. SAB 101 summarizes the SECs
view in applying generally accepted accounting principles to selected revenue
recognition issues. Prior to the adoption of SAB 101, the Company recognized
revenues and the related costs from retail sales when at least 50% of the
payment was received. In response to SAB 101, the Company defers revenue
recognition until delivery of the product by estimating the value of
transactions in which final delivery to the customer has not occurred at the
end of the period presented. Cash received prior to final delivery of the
product is reflected as a deposit liability within accrued liabilities. These
estimates are based on historical trends, taking into consideration current
changes in the Companys manufacturing and distribution process.

Cost of Goods Sold

The Company recognizes cost of product
sold to retail customers when the sales transaction is complete and
revenue is recognized. Periodically, the Company receives purchase
discounts or reduced pricing on inventory purchases; these reductions
in the normal purchase price are accounted for in the weighted
average cost of inventory.

Cash and Cash Equivalents

The Company considers cash on hand and short-term cash investments to be cash
and cash equivalents. The Companys policy is to maintain uninvested cash at
minimal levels. Cash includes cash equivalents which represent highly liquid
investments with a maturity of one month or less. The Company restricts
investment of temporary cash investments to financial institutions with high
credit standings.

F-8



---



##### 



Receivables Under Reimbursement Plans

Managed care accounts receivable are recorded net of contractual allowances and
are reduced by an allowance for amounts that may become uncollectible.
Substantially all of the Companys receivables are due from health care plans
and programs located throughout the United States. Estimates of our allowance
for uncollectible receivables are based on our historical collection
experience, historical and current operating, billing and collection trends.

Inventories

The Companys inventories are stated at the lower of weighted average cost or
market.

In most cases, the expected sales value (i.e., market value) of the Companys
inventory is higher than its cost. However, as the Company progresses through
a selling season, certain slow-moving merchandise may be removed from stores
and returned to the Companys distribution center to be sold below cost in
secondary markets. As a result, there is a high degree of judgment and
complexity in determining the market value of such inventories. For inventory
on hand, the Company estimates the future selling price of its merchandise,
given its current selling price and its planned promotional activities, and
provides a reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.

The Company conducts physical inventory counts for a selection of store
locations near the end of each fiscal quarter and adjusts the Companys records
to reflect the actual inventory counts. The Companys distribution center
is counted near
the end of the fiscal year. As all locations are not counted as of the
Companys reporting dates, the Company provides a reserve for inventory
shrinkage based principally on historical inventory shrinkage experience.

Property and Equipment

Property and equipment are stated at cost. For financial reporting purposes,
depreciation is computed using the straight-line method over the assets
estimated useful lives or terms of the related leases, whichever is shorter.
Accelerated depreciation methods are used for income tax reporting purposes.
For financial reporting purposes, the useful lives used for computation of
depreciation range from five to ten years for equipment, from three to nine
years for furniture and fixtures, from three to six years for hardware and
software related to information systems processing, and from five to nine years
which approximate the remaining lease term for leasehold improvements. At the
time property and equipment are retired, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is credited or
charged to income. Maintenance and repairs are charged to expense as incurred.
Replacements and improvements are capitalized.

In August 2001, the Financial Accounting Standards Board ( FASB) issued
Statement of Financial Accounting Standards, (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
amends APB Opinion No. 51, Consolidated Financial Statements. SFAS No. 144
retains many of the requirements of SFAS No. 121 and the basic provisions of
APB Opinion No. 30; however, it establishes a single accounting model for
long-lived assets to be disposed of by sale. The Company adopted this
pronouncement upon implementation of fresh start accounting as required by SOP
90-7. SFAS No. 144 did not have a material impact on our financial statements.

Balance Sheet Financial Instruments: Fair Values

The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and current portion of
long-term debt approximate fair value because of the immediate or short-term
maturity of these financial instruments.

The fair value of the Companys long-term debt determined using the closing
price on the most recent trade date prior to December 29, 2001 on the American
Stock Exchange is as follows:

|               |  |                |         |            |  |   |        | 
|-------------- |  | -------------- | ------- | ---------- |  | - | ------ | 
|               |  | Carrying Value |         | Fair Value
|               |  |                |         |           
|Long-term debt |  | $              | 118,403 |            |  | $ | 74,003 | 

Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The risk is
limited due to the large number of individuals and entities comprising the
Companys customer base.

F-9



---



##### 



Intangible Value of Contractual Rights

The Companys most significant intangible asset is the Intangible Value of
Contractual Rights, which was established as part of the Companys adoption of
fresh start accounting in May 2001. This intangible asset, which has a
gross carrying amount of $113.6 million and accumulated
amortization of $4.4 million at December 29, 2001, represents the value of
the Companys lease agreement with Wal-Mart and the business relationship
therein created. In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, this intangible is an amortizable asset because it has a
finite useful life. However, the precise length of its life is not known due
primarily to the Wal-Mart superstore conversions that automatically trigger
extensions on the contractual life of the asset. Based on our projections, our
best estimate of the useful life of this asset is 15 years. Due to the
uncertainty involved in predicting the pattern of economic benefits realized
from the Wal-Mart relationship, the Company amortizes this asset using the
straight-line method.

Amortization expense on the Intangible
Value of Contractual Rights was $4.4 million for the seven
months ended December 29, 2001. Future amortization expense for
each of the five succeeding fiscal years is expected to be as follows:



|2002 | $7,573
|---- | ------
|2003 | $7,573
|2004 | $7,573
|2005 | $7,573
|2006 | $7,573

The Company assesses the impairment of all identifiable intangibles and
long-lived assets on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important, which could trigger an impairment review, include (1) a
significant underperformance of vision center operations relative to expected
historical or projected future operating results; (2) significant changes in
the manner of our use of Company assets or the strategy for our overall retail
optical business; (3) significant negative industry or economic trends; (4)
significant decline or adverse change in the rate or geographic concentration
of Wal-Mart host store relocations or superstore conversions; and (5) a
permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on an
undiscounted projected cash
flow model. If the undiscounted projected cash flows are not in excess of the book value of
the related asset, we measure the impairment based on a projected discounted
cash flow method. Significant management judgment is required regarding the
existence of impairment indicators as discussed above. Based on our review of
our intangible and other long-lived assets as of December 29, 2001, no
impairment of these assets was determined to exist.

Income Taxes

Deferred income taxes are recorded using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred income taxes
are provided for depreciation, inventory basis differences, and accrued
expenses where there is a temporary difference in recording such items for
financial reporting and income tax reporting purposes. Before, during and
after the bankruptcy process, the Company incurred significant net operating
losses (NOL) that result in tax loss carry-forwards. A portion of these
carry-forwards are subject to limitations under section 382 of the Internal
Revenue Code.

In accordance with the provisions of SFAS 109, Accounting for Income Taxes, a
valuation allowance is recorded against any net deferred tax assets if it is
more likely than not that we will not be able to utilize it to offset future
taxes. Due to the size of the NOL carry-forward in relation to our history of
unprofitable operations and the continuing uncertainties surrounding the
profitability of our ongoing retail businesses, we provide a full valuation
allowance for the net deferred tax asset. We currently provide for income
taxes only to the extent that we expect to pay cash.

Accounting for Stock Options

The Company applies the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Stock Option awards continue to be accounted for in
accordance with APB Opinion No. 25. In October 2001, the Company granted stock
options to eligible employees. Because the number of shares to be issued and
the per share strike price are not subject to uncertainty, this stock option
plan qualifies for fixed accounting treatment. As a result, the Company does
not record compensation expense in connection with the granting of these stock
options.

F-10



---



##### 



Had compensation cost for the Plan been determined based on the fair value at
the grant date for awards in 2001, 2000 and 1999 consistent with the
provisions of SFAS No. 123, the Companys net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below (amounts in
thousands except per share information):

| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |         |  
| | ---------------------------------------- |  | ----------------- | ------ | - | ------------ |  | ---- | ------- | ---- |  | - | -------- | - |  | - | ------- | -
| |                                          |  | Successor         |        |   | Predecessor 
| |                                          |  |                   |        |   |             
| |                                          |  | Seven Months      |        |   | Five Months  |  |      |         |      |  |   |          |  
| |                                          |  | Ended             |        |   | Ended        |  |      |         |      |  |   |          |  
| |                                          |  | December 29, 2001 |        |   | June 2, 2001 |  | 2000 |         | 1999
| |                                          |  |                   |        |   |              |  |      |         |     
| | As reported: Net earnings / (loss)       |  | $                 | (5,860 | ) |              |  | $    | 113,323 |      |  | $ | (139,880 | ) |  | $ | (17,562 | )
| | Pro forma compensation expense           |  |                   | 4      |   |              |  |      | (4,312  | )    |  |   | 1,912    |   |  |   | 1,704   |  
| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |        
| | Pro forma net earnings/(loss)            |  | $                 | (5,864 | ) |              |  | $    | 117,635 |      |  | $ | (141,792 | ) |  | $ | (19,266 | )
| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |        
| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |        
| | As reported: Earnings per share          |  | $                 | (1.17  | ) |              |  | $    | 5.35    |      |  | $ | (6.61    | ) |  | $ | (0.83   | )
| | Pro forma compensation expense per share |  |                   |       |   |              |  |      | 0.21    |      |  |   | (.09     | ) |  |   | (0.08   | )
| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |        
| | Pro forma earnings per share             |  | $                 | (1.17  | ) |              |  | $    | 5.56    |      |  | $ | (6.70    | ) |  | $ | (0.91   | )
| |                                          |  |                   |        |   |              |  |      |         |      |  |   |          |   |  |   |        

Basic and diluted earnings per share are the same for each period presented.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average assumptions
were used in the model:

|                         |  |                   |      |   |              |  |      |    |      |  |  |      |   |  |  |      |  
|------------------------ |  | ----------------- | ---- | - | ------------ |  | ---- | -- | ---- |  |  | ---- | - |  |  | ---- | -
|                         |  | Successor         |      |   | Predecessor 
|                         |  |                   |      |   |             
|                         |  | Seven Months      |      |   | Five Months  |  |      |    |      |  |  |      |  
|                         |  | Ended             |      |   | Ended        |  |      |    |      |  |  |      |  
|                         |  | December 29, 2001 |      |   | June 2, 2001 |  | 2000 |    | 1999
|                         |  |                   |      |   |              |  |      |    |     
|Dividend yield           |  |                   | 0.00 | % |              |  |      | (a | )    |  |  | 0.00 | % |  |  | 0.00 | %
|Expected volatility      |  |                   | 217  | % |              |  |      | (a | )    |  |  | 142  | % |  |  | 88   | %
|Risk free interest rates |  |                   | 4.50 | % |              |  |      | (a | )    |  |  | 5.1  | % |  |  | 5.1  | %
|Expected lives (years)   |  |                   | 6.7  |   |              |  |      | (a | )    |  |  | 5.0  |   |  |  | 4.7  |  



---

|(a) |  | No options were granted during this period.
|--- |  | -------------------------------------------

Other Assets and Deferred Costs

Other assets and deferred costs include capitalized financing costs which are
being amortized using a method which approximates the effective yield method over periods from one to seven years
to correspond with the terms of the underlying debt. In addition, certain
capitalized assets resulting from contractual obligations are included and are
being amortized over periods of up to five years.

Self-Insurance Accruals

The Company self-insures estimated costs associated with workers compensation
claims and group medical liabilities, up to certain limits. Insurance reserves
are established based on actuarial estimates of the loss that we will ultimately incur on
reported claims, as well as estimates of claims that have been incurred but not
yet reported. Trends in actual experience are
a significant factor in the determination of such reserves. We believe our
estimated reserves for such claims are adequate, however actual experience in
claim frequency and/or severity could materially differ from our estimates and
affect our results of operations.

F-11



---



##### 



Advertising and Promotion Expense

Production costs of future media advertising and related promotion campaigns
are deferred until the advertising events occur. All other advertising and
promotion costs are expensed during the year in which they are incurred.
Advertising expense, net of cooperative advertising credits, for the seven months ended December 29, 2001, the five
months ended June 2, 2001, the year ended December 30, 2000 and the year ended
January 1, 2000 was approximately $2.8 million, $3.6 million, $12.2 million and
$14.3 million, respectively.

Interest Expense, Net

Interest expense includes interest on debt and capital lease obligations,
purchase discounts on invoice payments, the amortization of finance fees, and
the amortization of the discount on the subordinated debt.

Foreign Currency Translation

The financial statements of foreign subsidiaries are translated into U.S.
dollars in accordance with SFAS No. 52 Foreign Currency Translation. Assets
and liabilities of our foreign operations are translated into U.S. dollars
using year-end exchange rates; income and expenses are translated using the
average exchange rates for the reporting period. Translation gains or losses
are deferred in accumulated other comprehensive income, a separate component of
shareholders equity.

Derivative Instruments and Hedging Activities

In 1998, the Financial Accounting Standards Board issued SFAS No.133,
Accounting for Derivative Instruments and Hedging Activities. The adoption
of SFAS No. 133 in 2001 had no impact on the Companys financial statements as
the Company did not hold derivative instruments, nor participate in hedging
activities.

Other Comprehensive Income

Other comprehensive income is defined as net income and other changes in
stockholders equity from transactions other than those involving stockholders
and net income. The Companys only source of other comprehensive income is the
cumulative translation adjustment from its operations in Mexico. The
Predecessor Companys cumulative other comprehensive income was eliminated as
part of fresh-start accounting on June 2, 2001.

Use of Estimates

The preparation of these financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments and
incorporates any changes in such estimates and judgments into the accounting
records underlying the Companys consolidated financial statements. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. In accordance with SOP 90-7, we adopted SFAS No. 141 and SFAS No. 142 at the fresh
start implementation date. The adoption of these pronouncements did not have
a material impact on our financial statements.

The FASB also recently issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement No. 144 supersedes Statement No. 121 to supply a
single accounting approach for measuring impairment of long-lived assets,
including segment of a business accounted for as a discontinued operation or
those to be sold or disposed of other than by sale. We adopted Statement No.
144 in 2001 upon fresh start accounting. Adoption of this pronouncement did
not have a material impact on our financial statements.

F-12



---



##### 



In December 1999, the SEC issued Staff
Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements  (SAB 101). SAB 101 summarizes the SECs view in
applying generally accepted accounting principles to selected revenue
recognition issues. SAB 101 specified that final delivery of product is
required prior to recognizing revenue. Prior to the adoption of SAB 101, the
Company recognized revenues and the related costs from retail sales when at
least 50% of the payment was received. We applied the guidance in SAB 101 to
our financial statements in 2000. The initial impact was reflected as a
cumulative effect adjustment to our consolidated financial statements resulting
from a change in accounting principles.

4. BANKRUPTCY PROCEEDINGS AND FRESH START ADJUSTMENTS

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was subsequently accepted by
the required percentage of creditors entitled to vote on the Plan and was
confirmed by the bankruptcy court by its order entered on May 18, 2001. On May
31, 2001, after securing a new revolving credit facility with Fleet Capital
Corporation, the Company emerged from bankruptcy.

The Plan provided for the conversion of the Companys pre-petition unsecured
claims into new secured notes and common stock. The secured notes have a face
value of $120 million, provide for the payment of interest of 12% twice a year
at the end of March and September, and are subordinated to debt under the
Companys credit facility. The notes are payable over eight years with
principal repayments based on excess cash flow for the prior six month period,
adjusted for existing cash balances, measured as of the end of June and
December of each year, with the first measurement date occurring at the end of
2001. The principal repayments are to be made by the end of the second month
subsequent to the measurement date. Any remaining outstanding
principal balance will be due in 2009. Five million shares of new common stock,
par value $0.01, were issued based on the Companys reorganization value.
Under the Plan, former shareholders received no value for their interests.
Consequently, all Predecessor common stock securities were cancelled.

The gain on cancellation of indebtedness aggregated $17.2 million and has been
treated as an extraordinary item in the accompanying Condensed Consolidated
Statements of Operations for the period ended June 2, 2001.

At December 29, 2001, $19.1 million of the new notes and approximately 810,000
shares of new common stock were not distributed to creditors whose claims were
disputed. The interests of creditors whose claims were not resolved upon the
Companys emergence from Chapter 11, were provided for in the Companys
disputed claim reserve. In accordance with the Plan, the notes and equity are
effectively held in trust for the benefit of the creditors, and will be
appropriately distributed upon resolution of disputed claims. Any balance
remaining in the disputed claims reserve, upon resolution of all claims, will
be distributed pro rata to all creditors.

In accounting for the effects of the reorganization, the Company adopted fresh
start accounting principles as contained in the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). SOP 90-7
was applicable because pre-reorganization shareholders received none of the
Companys new common stock and the reorganization value of the assets of the
Successor company was less than the total pre-petition liabilities allowed plus
post-petition liabilities. SOP 90-7 also requires that any changes in
accounting principles required within twelve months of fresh start accounting,
must be adopted at the time of implementation of fresh start
accounting. (See Note 3.)

Fresh Start accounting principles require that we determine the
reorganization value of the reorganized Company. The Companys reorganization
value was developed by the Company, the Official Committee of Unsecured
Creditors and their respective financial advisors. The reorganization value
was based on a calculation of the present value of the free cash flows under
the Companys financial projections, including an assumption of a terminal
value. Such projections were submitted to the bankruptcy court and to creditors
for review and objection as part of the Companys disclosure statement
accompanying the Plan.

In the allocation of the reorganization value, the Companys tangible and
intangible assets were recorded at their assumed fair value. Intangible Value
of Contractual Rights, approximating $113.6 million, was established as part of
fresh start accounting and will be amortized over 15 years using the
straight-line method. This intangible asset represents the value of the
Companys lease agreement and the business relationship developed with
Wal-Mart.

F-13



---



##### 



Net increases in the fair value of the Companys identifiable assets totaled
$114.3 million. This amount was recognized as a gain in the Predecessors
statement of operations and is detailed below (amounts in thousands):

|                                       |  |                      |         |     
|-------------------------------------- |  | -------------------- | ------- | ----
|                                       |  | Increase /(Decrease)
|                                       |  |                     
|Inventory                              |  | $                    | (700    | )(e)
|Property, plant and equipment, net     |  |                      | 1,942   | (f) 
|Other assets                           |  |                      | (586    | )(g)
|Intangible value of contractual rights |  |                      | 113,607 | (h) 
|                                       |  |                      |         |     
|Total fair value adjustments           |  | $                    | 114,263 |     
|                                       |  |                      |         |     

The application of fresh start accounting on the Predecessor companys June 2,
2001 balance sheet is as follows: (amounts in thousands)

|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |         | 
|------------------------------------------ | ----------------------------------- | - | ------------ | -------- | -------------- |  | ------------- | ------ | ----------- |  | ------------- | ------- | --- |  | ------- | ------- | ----------- | - | ------- | ------- | 
|                                           |                                     |   | Predecessor  |          |                |  |               |        |             |  |               |         |     |  |         |         | Successor  
|                                           |                                     |   | Before       |          |                |  |               |        |             |  |               |         |     |  |         |         | Reorganized
|                                           |                                     |   | Fresh Start  |          | Extinguishment |  | New issuance  |        | Fair value  |  | Balance Sheet
|                                           |                                     |   | June 2, 2001 |          | of debt        |  | Notes / Stock |        | adjustments |  | June 2, 2001 
|                                           |                                     |   |              |          |                |  |               |        |             |  |              
|Cash & cash equivalents                    |                                     | $ | 11,165       |          |                |  |               |        |             |  |               |         |     |  |         |         |             | $ | 11,165  |        
|Accounts receivable                        |                                     |   | 4,544        |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   | 4,544   |        
|Inventory                                  |                                     |   | 20,566       |          |                |  |               |        |             |  |               |         |     |  | (700    | ) (e)   |             |   | 19,866  |        
|Deferred tax asset                         |                                     |   |             |          |                |  |               |        |             |  |               |         |     |  | 7,199   | (j)     |             |   | 7,199   |        
|Other current assets                       |                                     |   | 778          |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   | 778     |        
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Total current assets                |   |              | 37,053   |                |  |               |       |             |  |               |        |     |  |         | 6,499   |             |   |         | 43,552  | 
|Property and equipment                     |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Property and equipment              |   |              | 88,191   |                |  |               |        |             |  |               |         |     |  |         | (60,323 | )           |   |         | 27,868  | 
|                                           | Accumulated depreciation            |   |              | (62,265  | )              |  |               |        |             |  |               |         |     |  |         | 62,265  |             |   |         |        | 
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Property and equipment, net         |   |              | 25,926   |                |  |               |       |             |  |               |        |     |  |         | 1,942   | (f)         |   |         | 27,868  | 
|Other assets and deferred costs            |                                     |   | 9,310        |          |                |  | (7,063        | ) (a)  |             |  |               |         |     |  | (586    | ) (g)   |             |   | 1,661   |        
|Deferred tax asset                         |                                     |   | 385          |          |                |  |               |        |             |  |               |         |     |  | (385    | ) (j)   |             |   |        |        
|Intangible value of contractual
rights     |                                     |   |             |          |                |  |               |        |             |  |               |         |     |  | 113,607 | (h)     |             |   | 113,607 |        
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Total assets                        |   | $            | 72,674   |                |  |               | (7,063 | )           |  |               |        |     |  |         | 121,077 |             |   | $       | 186,688 | 
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|Liabilities not subject to compromise:     |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|Current liabilities                        |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Accounts payable                    |   | $            | 1,858    |                |  |               |        |             |  |               |         |     |  |         |         |             |   | $       | 1,858   | 
|                                           | Accrued expenses                    |   |              | 27,619   |                |  |               | 2,300  | (b)         |  |               |         |     |  |         |         |             |   |         | 29,919  | 
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Total current liabilities           |   |              | 29,477   |                |  |               | 2,300  |             |  |               |        |     |  |         |        |             |   |         | 31,777  | 
|                                           | Revolving credit facility           |   |              | 3,000    |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         | 3,000   | 
|                                           | Senior notes                        |   |              |         |                |  |               |        |             |  |               | 120,000 | (d) |  |         |         |             |   |         | 120,000 | 
|                                           | Other debt                          |   |              |         |                |  |               | 97     | (b)         |  |               |         |     |  |         |         |             |   |         | 97      | 
|Deferred tax liability                     |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  | 6,814   | (j)     |             |   | 6,814   |        
|Liabilities subject to compromise          |                                     |   | 171,642      |          |                |  | (171,642      | ) (b)  |             |  |               |         |     |  |         |         |             |   |         |        
|Shareholders equity / (deficit)           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Common stock                        |   |              | 211      |                |  |               |        |             |  |               | 50      | (d) |  |         | (211    | ) (i)       |   |         | 50      | 
|                                           | Additional paid-in
capital          |   |              | 47,387   |                |  |               |        |             |  |               | 24,950  | (d) |  |         | (47,387 | ) (i)       |   |         | 24,950  | 
|                                           | Retained earnings / (deficit)       |   |              | (174,970 | )              |  |               | 17,182 | (c)         |  |               |         |     |  |         | 157,788 | (i)         |   |         |        | 
|                                           | Cumulative translation
adjustment   |   |              | (4,073   | )              |  |               |        |             |  |               |         |     |  |         | 4,073   | (i)         |   |         |        | 
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|                                           | Total shareholders equity / (loss) |   |              | (131,445 | )              |  |               | 17,182 |             |  |               | 25,000  |     |  |         | 114,263 |             |   |         | 25,000  | 
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        
|Total liabilities and shareholders
equity |                                     | $ | 72,674       |          |                |  | (152,063      | )      |             |  | 145,000       |         |     |  | 121,077 |         |             | $ | 186,688 |        
|                                           |                                     |   |              |          |                |  |               |        |             |  |               |         |     |  |         |         |             |   |         |        



---

|(a) |  | Elimination of deferred financing costs associated with the senior
notes being cancelled as part of the plan of reorganization.      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Elimination of pre-petition liabilities. Cash claims of $2.3 million
were accrued as well as assumed capital leases totaling $97,000.

F-14



---



##### 



|(c) |  | Gain on extinguishment of debt is calculated as follows: (amounts in
thousands)
|--- |  | -------------------------------------------------------------------------------

|                                                           |  |   |         |  
|---------------------------------------------------------- |  | - | ------- | -
|Net liabilities subject to compromise                      |  | $ | 169,245 |  
|Deferred financing costs related
to cancelled senior notes |  |   | (7,063  | )
|                                                           |  |   |         |  
|Net liabilities extinguished                               |  |   | 162,182 |  
|Less: Reorganized value                                    |  |   | 145,000 |  
|                                                           |  |   |         |  
|Gain on extinguishment of debt                             |  | $ | 17,182  |  
|                                                           |  |   |         |  

|(d) |  | Issuance of new senior notes, totaling $120 million, and the issuance
of 5,000,000 shares of new common stock with par value of $0.01. The
reorganization value was derived from a recovery analysis filed in the
bankruptcy court in connection with the Plan. The components of the
reorganized value are shown below: (amounts in thousands)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |   |         | 
|-------------------- |  | - | ------- | 
|Reorganized value    |  |   |         | 
|New Debt             |  | $ | 120,000 | 
|New Equity           |  |   | 25,000  | 
|                     |  |   |         | 
|Reorganization value |  | $ | 145,000 | 
|                     |  |   |         | 

|(e) |  | Reduction of inventory for a change in accounting policy related to
the capitalization of certain freight costs incurred for transfers of
inventory between Company locations, and certain business supplies.                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(f) |  | Net increase in fixed assets is the result of fair value adjustments
increasing equipment by approximately $3.4 million and decreasing
certain leaseholds and furniture and fixtures by $1.5 million.                                                   
|   
|(g) |  | Elimination of all intangibles with the exception of the California
HMO licenses.                                                                                                                                                                       
|   
|(h) |  | Establishment of Intangible value of contractual rights to be
amortized over 15 years using the straight-line method. This intangible
asset represents the value of the Companys lease agreement and the
business relationship developed with Wal-Mart.
|   
|(i) |  | Elimination of Predecessor Company equity.                                                                                                                                                                                                              
|   
|(j) |  | Deferred tax effects of fair value adjustments.                                                                                                                                                                                                         

5. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION EXPENSE / (GAIN)

As part of fresh start accounting, liabilities subject to compromise in the
amount of $169 million were exchanged for new notes and common stock as part of
the discharge of debt in the bankruptcy. These liabilities are identified
below: (amounts in thousands)

|                                                         |  |               |         |                   |  |   |         | 
|-------------------------------------------------------- |  | ------------- | ------- | ----------------- |  | - | ------- | 
|                                                         |  | (Predecessor) |         | (Predecessor)    
|                                                         |  | June 2, 2001  |         | December 30, 2000
|                                                         |  |               |         |                  
|Accounts payable                                         |  | $             | 27,830  |                   |  | $ | 25,856  | 
|Accrued expenses and
provision for rejected contracts    |  |               | 2,359   | (a)               |  |   | 5,859   | 
|Senior notes net of discount,
including accrued interest |  |               | 131,356 |                   |  |   | 131,266 | 
|Other long-term debt and
capital lease obligations       |  |               | 7,700   | (b)               |  |   | 7,843   | 
|                                                         |  |               |         |                   |  |   |         | 
|                                                         |  | $             | 169,245 |                   |  | $ | 170,824 | 
|                                                         |  |               |         |                   |  |   |         | 

|(a) |  | This amount is net of an accrual for claims to be paid in cash of
approximately $2.3 million.             
|--- |  | ----------------------------------------------------------------------------------------------------------
|   
|(b) |  | This amount is net of $97,000 worth of capital leases assumed to
continue after emergence from bankruptcy.

F-15



---



##### 



In accordance with SOP 90-7, the Predecessor Company recorded all transactions
incurred as a result of the Chapter 11 Cases as reorganization items. The
table below summarizes these items: (amounts in thousands)

|                                                      |  |               |          |                   |  |   |         |  
|----------------------------------------------------- |  | ------------- | -------- | ----------------- |  | - | ------- | -
|                                                      |  | (Predecessor) |          | (Predecessor)    
|                                                      |  | Five Months   |          | Twelve Months    
|                                                      |  | Ended         |          | Ended            
|                                                      |  | June 2, 2001  |          | December 30, 2000
|                                                      |  |               |          |                  
|Fresh start adjustments                               |  | $             | (114,263 | )                 |  | $ |        |  
|Impairment of goodwill                                |  |               |         |                   |  |   | 100,805 |  
|Impairment of fixed assets                            |  |               | 33       |                   |  |   | 12,000  |  
|Provision for rejected leases                         |  |               | 1,592    |                   |  |   | 1,920   |  
|Loss on sale of freestanding division                 |  |               | 3,645    |                   |  |   |        |  
|Other store closing costs                             |  |               | 532      |                   |  |   | 670     |  
|Professional fees                                     |  |               | 2,008    |                   |  |   | 3,421   |  
|Retention plan                                        |  |               | 3,231    |                   |  |   | 2,173   |  
|Interest income                                       |  |               | (127     | )                 |  |   | (144    | )
|Letter of credit reserve on DIP Facility (see Note 8) |  |               | 197      |                   |  |   |        |  
|Other reorganization items                            |  |               | 637      |                   |  |   | 694     |  
|                                                      |  |               |          |                   |  |   |         |  
|Total reorganization (gain) / expense                 |  | $             | (102,515 | )                 |  | $ | 121,539 |  
|                                                      |  |               |          |                   |  |   |         |  

The following represents activity in the restructuring and reorganization
provisions during 2001. This amount includes an estimate for disputed claims
that are expected to be paid in cash in 2002 (amounts in thousands):

|                                       |  |                   |       |            |  |      |       |                        |  |                   |         |            |  |                    |         |   |  |   |       | 
|-------------------------------------- |  | ----------------- | ----- | ---------- |  | ---- | ----- | ---------------------- |  | ----------------- | ------- | ---------- |  | ------------------ | ------- | - |  | - | ----- | 
|                                       |  |                   |       |            |  |      |       |                        |  |                   |         |            |  | Other adjustments, |         |   |  |  
|                                       |  | Balance at        |       | Charged to |  |      |       |                        |  | including         |         | Accrued at
|                                       |  | December 30, 2000 |       | Expense    |  | Paid |       | Fresh-start accounting |  | June 2, 2001     
|                                       |  |                   |       |            |  |      |       |                        |  |                  
|Restructuring and
reorganization items |  | $                 | 4,727 |            |  | $    | 9,889 |                        |  |                   | ($1,343 | )          |  |                    | ($4,042 | ) |  | $ | 9,231 | 
|                                      
|                                      
|                                       |  | Balance at        |       | Charged to |  |      |       |                        |  |                   |         |            |  | Accrued at        
|                                       |  | June 2, 2001      |       | Expense    |  | Paid |       | Other adjustments      |  | December 29, 2001
|                                       |  |                   |       |            |  |      |       |                        |  |                  
|Restructuring and
reorganization items |  | $                 | 9,231 |            |  | $    |      |                        |  |                   | ($8,383 | )          |  |                    | 377     |   |  | $ | 1,225 | 

The ending balance of this restructuring and reorganization accrual consists
primarily of an estimate for disputed claims that are expected to be paid in
cash, and the expected costs associated with resolving them.

F-16



---



##### 



6. WAL-MART MASTER LICENSE AGREEMENT AND OTHER AGREEMENTS

Wal-Mart Agreement

We operate 400 vision centers in domestic Wal-Mart stores, all of which operate
pursuant to a master license agreement. These units generated approximately
83% of our revenue in 2001. In 1994, the Company and Wal-Mart replaced their
original agreement with a new master license agreement (the Wal-Mart
Agreement), which increased minimum and percentage license fees payable by the
Company and also granted the Company the opportunity to operate up to 400
vision centers in existing and future Wal-Mart stores (400 vision centers were
in operation under the Wal-Mart Agreement at fiscal year end 2001). Each vision
center covered by the Wal-Mart Agreement has a separate license. Pursuant to
the Wal-Mart Agreement, the term of each such license is nine years with a
renewable option for one additional three-year term. Percentage license fees
remain the same over the nine-year base term and three- year option term,
whereas minimum license fees increase during the three-year option term. The
Wal-Mart license agreement is subject to certain customary provisions,
including a minimum tangible net worth calculation (as defined). Management
believes that it is in compliance with this provision at December 29, 2001.

Mexico Agreement

In 1994, the Company opened eight vision centers in stores owned and operated by
Wal-Mart de Mexico, S.A. de C.V. (Wal-Mart de Mexico). In 1995, the Company
completed the negotiation of a master license agreement governing these vision
centers. Pursuant to this agreement, each vision center has an individual base
term of five years from the date of opening, followed by two options (each for
two years), and one option for one year. Each party has the right to terminate
a location which fails to meet specified sales levels. The agreement provides
for annual fees based on a minimum and percentage of sales. The agreement also
gives the Company a right of first refusal to open vision centers in all stores
in Mexico owned by Wal-Mart de Mexico. As of December 29, 2001, the Company
operated 35 vision centers in Wal-Mart de Mexico stores.

Fred Meyer

The Company operates 55 leased vision centers in stores owned by Fred Meyer
pursuant to a master license agreement. The agreement provides for minimum and
percentage rent and other customary terms and conditions. The term of the
agreement is for five years (expiring December 31, 2003), with a five-year
option.

7. INVENTORY

The Company classifies inventory as finished goods if such inventory is readily
available for sale to customers without assembly or value added processing.
Finished goods include contact lenses, over the counter sunglasses and
accessories. The Company classifies inventory as raw materials if such
inventory requires assembly or value added processing. This would include
grinding a lens blank, cutting the lens in accordance with a prescription from
an optometrist, and fitting the lens in a frame. Frames and uncut lens are
considered raw materials. A majority of the Companys sales represent custom
orders; consequently, the majority of the Companys inventory is classified as
raw materials.

F-17



---



##### 



Inventory balances, by classification, are summarized as follows: (amounts in
thousands)

|               |  |           |        |  |             |  |   |        | 
|-------------- |  | --------- | ------ |  | ----------- |  | - | ------ | 
|               |  | Successor |        |  | Predecessor
|               |  | 2001      |        |  | 2000       
|               |  |           |        |  |            
|Raw materials  |  | $         | 12,262 |  |             |  | $ | 22,175 | 
|Finished goods |  |           | 5,868  |  |             |  |   | 8,153  | 
|Supplies       |  |           | 491    |  |             |  |   | 1,150  | 
|               |  |           |        |  |             |  |   |        | 
|               |  | $         | 18,621 |  |             |  | $ | 31,478 | 
|               |  |           |        |  |             |  |   |        | 

The Predecessor 2000 inventory balances include capitalized freight costs of
$250,000 for freight costs incurred to transfer inventory between Company
locations and $420,000 of costs capitalized for certain business supplies. In
2001, the Successor Company expenses these costs as a component of cost of
goods sold as incurred.

8. LONG-TERM DEBT

Exit Facility

In May 2001, the Companys secured revolving credit facility with Foothill
Capital expired and was replaced with a senior secured revolving credit
facility (the Exit Facility) from Fleet Capital Corporation. The Exit
Facility has a term of three years, bears interest at the prime rate plus 0.75%
per annum or at LIBOR plus 3.0%, and provides availability of an
estimated $10 million, subject to borrowing base limitations and letter of
credit requirements. The Exit Facility contains various restrictive covenants
and requires us to maintain minimum EBITDA levels (as defined) and a minimum
fixed charge coverage ratio (as defined) of 1.0 to 1.0. The Company paid
$275,000 in commitment fees related to the Exit Facility in 2001. At December
29, 2001, the Company had no outstanding borrowings under the Exit Facility and
$1.7 million of unused availability.

Debtor-in-Possession Financing

On May 9, 2000, the Bankruptcy Court approved an order permitting the Company
to enter into a $25 million debtor-in-possession credit facility with Foothill
Capital Corporation (the DIP Facility). The DIP Facility (which replaced the
Companys prior secured credit facility with Foothill Capital Corporation)
consisted of a $12.5 million term loan and $12.5 million revolving credit
facility. The Company paid professional fees, organization fees and waiver fees
of $500,000 to convert the previous Foothill Credit Facility to the DIP
Facility. The DIP Facility expired on May 31, 2001. All professional fees,
organization fees and waiver fees associated with the DIP Facility were written
off upon expiration of the Facility.

F-18



---



##### 



Senior Subordinated Notes

As part of the Companys Plan of Reorganization, the Predecessor Companys $125
million unsecured notes were converted into new Successor Company secured notes
and common stock. The Successor Company notes have a face value of $120
million, provide for the payment of interest of 12% twice a year at the end of
March and September, and are subordinated to debt under the Companys credit
facility. These notes are payable over eight years with principal repayments
(Excess Cash Repayments) based on excess cash flow for the prior six month
period, adjusted for existing cash balances, and measured at the end of June
and December, beginning with December 2001. The principal repayments are to be
made by the end of the second month subsequent to the measurement
date. Any remaining outstanding principal will become due in 2009. For
the six months ended December 29, 2001, the Company made an Excess Cash
Repayment of $1.6 million on February 28, 2002 to bondholders of record on
February 13, 2002. This amount is classified as current at December 29, 2001.
As Excess Cash Repayments are contingent upon future cash flows, the only
principal repayment that is classified as current is the
Excess Cash Repayment measured as of December 29, 2001.

Long-Term Debt Balances

Long-term debt obligations at December 29, 2001 and December 30, 2000 consisted
of the following (amounts in thousands):

|                                                                 |  |           |         |  |             |  |   |         |  
|---------------------------------------------------------------- |  | --------- | ------- |  | ----------- |  | - | ------- | -
|                                                                 |  | Successor |         |  | Predecessor
|                                                                 |  | 2001      |         |  | 2000       
|                                                                 |  |           |         |  |            
|12% Subordinated Notes due 2009                                  |  | $         | 120,000 |  |             |  | $ |        |  
|12 3/4% Senior Notes due 2005                                    |  |           |        |  |             |  |   | 125,000 |  
|Discount on 12 3/4% Senior Notes                                 |  |           |        |  |             |  |   | (1,214  | )
|Borrowings under DIP Facility                                    |  |           |        |  |             |  |   | 12,911  |  
|Other promissory notes                                           |  |           |        |  |             |  |   | 6,808   |  
|                                                                 |  |           |         |  |             |  |   |         |  
|                                                                 |  | $         | 120,000 |  |             |  | $ | 143,505 |  
|Less: Borrowings not subject to compromise
classified as current |  |           | 1,597   |  |             |  |   | 12,911  |  
|Less: Long-term debt subject to compromise                       |  |           |        |  |             |  |   | 130,594 |  
|                                                                 |  |           |         |  |             |  |   |         |  
|Long-term debt not subject to compromise                         |  | $         | 118,403 |  |             |  | $ |        |  
|                                                                 |  |           |         |  |             |  |   |         |  

The Company is party to letters of
credit totaling $3.5 million and $4.5 million at December 29, 2001 and December 30, 2000, respectively. Management
does not expect any material losses to result from these off-balance-sheet
instruments because performance is not expected to be required.

See Note 2 to Consolidated Financial Statements for the fair value estimate of
the long-term debt at December 29, 2001.

9. EXTRAORDINARY ITEM

In 2001, as part of the Companys emergence from bankruptcy, the Predecessor
Company recognized an extraordinary gain of $17.2 million related to the
extinguishment of debt. The gain was calculated as follows:

|                                                           |  |   |         |  
|---------------------------------------------------------- |  | - | ------- | -
|Net liabilities subject to compromise                      |  | $ | 169,245 |  
|Deferred financing costs related
to cancelled senior notes |  |   | (7,063  | )
|                                                           |  |   |         |  
|Net liabilities extinguished                               |  |   | 162,182 |  
|Less: Reorganized value                                    |  |   | 145,000 |  
|                                                           |  |   |         |  
|Gain on extinguishment of debt                             |  | $ | 17,182  |  
|                                                           |  |   |         |  

In 2000, the Company recorded an extraordinary loss of $827,000 as a result of
refinancing the Companys Foothill Credit Facility. In 1999, the Company
recorded an extraordinary loss of $406,000 as a result of refinancing the
previous secured credit facility. Both refinancings necessitated the write-off
of capitalized costs associated with the previous facilities. Because of the
Companys decision to fully reserve for the Companys 2001, 2000 and 1999 tax
benefit, there was no tax effect on these extraordinary items.

F-19



---



##### 



10. COMMITMENTS AND CONTINGENCIES

Non-cancellable Operating Lease and License Agreements

As of December 29, 2001, the Company is a lessee under non-cancellable
operating lease agreements for certain equipment which expire at various dates
through 2003. Additionally, the Company is required to pay minimum and
percentage license fees pursuant to certain commercial leases and pursuant to
its agreements with its host store companies.

Effective December 20, 1991, the Company entered into a lease agreement for
approximately 66,000 square feet of corporate office space. The term of the
lease is ten years with a renewal option of seven years. The Company paid
approximately $215,000 annually in rental fees in 2001, 2000 and 1999. We
exercised our option for this lease, which now expires in 2009.

In connection with its acquisition of Midwest Vision, Inc., the Company entered
into a ten-year lease for administrative headquarters and an optical laboratory
located in St. Cloud, Minnesota. The facility is leased from the former owner
of Midwest Vision. Lease expense on the headquarters and laboratory is
approximately $6,667 monthly which, in the opinion of management, represents a
fair market lease rate.

As of December 29, 2001, aggregate future minimum payments under the license
and lease arrangements that will not be assigned or rejected in the Bankruptcy
proceedings are as follows: (amounts in thousands)

|                             |            |                  |        |       |        | 
|---------------------------- | ---------- | ---------------- | ------ | ----- | ------ | 
|Fiscal Year                  |            | Operating Leases
|                             |            |                 
|                             |            | 2002             |        | $     | 26,019 | 
|                             |            | 2003             |        |       | 22,981 | 
|                             |            | 2004             |        |       | 11,141 | 
|                             |            | 2005             |        |       | 5,011  | 
|                             |            | 2006             |        |       | 2,947  | 
|                             | Thereafter |                  |        | 3,504 |       
|                             |            |                  |        |      
|Total minimum lease payments |            | $                | 71,603 |      
|                             |            |                  |        |      

Total rental expenses related to cancelable and non-cancellable operating
leases were approximately $17.8  million, $16.5  million,
$41.0  million, and
$43.1  million for the seven months ended December 29, 2001, the five months
ended June 2, 2001, and the years ended December 30, 2000 and January 1, 2000,
respectively.

Proceedings Under Chapter 11 of the Bankruptcy Code

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was subsequently accepted by
the required percentage of creditors entitled to vote on the Plan and was
confirmed by the bankruptcy court by its order entered on May 18, 2001. On May
31, 2001, after securing a new revolving credit facility with Fleet Capital
Corporation, the Company emerged from bankruptcy.

The Plan provided for the conversion of the Companys pre-petition unsecured
claims into new secured notes and common stock. The secured notes have a face
value of $120 million, provide for the payment of interest of 12% twice a year
at the end of March and September, and are subordinated to debt under the
Companys credit facility. The notes are payable over eight years with
principal repayments based on excess cash flow for the prior six month period,
adjusted for existing cash balances, measured as of the end of June and
December of each year, with the first measurement date occurring at the end of
2001. The principal repayments are to be made by the end of the second month
subsequent to the measurement date. Five million shares of new common stock,
par value $0.01, were issued based on the Companys reorganization value.
Under the Plan, former shareholders received no value for their interests.
Consequently, all Predecessor common stock securities were cancelled.

At December 29, 2001, $19.1 million of the new notes and approximately 810,000
shares of new common stock were not distributed to creditors whose claims were
disputed. Disputed claims include the potential liability for certain
litigation matters of the Predecessor Company. The interests of creditors
whose claims were not resolved upon the Companys emergence from Chapter 11,
were provided for in the Companys disputed claim reserve. In accordance with
the Plan, the notes and equity are effectively held in trust for the benefit of
the creditors, and will be appropriately distributed upon resolution of
disputed claims. Any balance remaining in the disputed claims reserve, upon
resolution of all claims, will be distributed pro rata to all creditors.

Legal Proceedings

The Company is involved in certain
litigation and claims arising in the normal course of business. In
the opinion of management, the resolution of these matters will not
have a material adverse effect on the financial position or results
of operations of the Company.

F-20



---



##### 



11. INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS 109) Accounting for Income Taxes, which requires the use of the
liability method of accounting for deferred income taxes. The components of the
net deferred tax assets are as follows (amounts in thousands):

|                               |  |              |         |   |              |  |   |         |  
|------------------------------ |  | ------------ | ------- | - | ------------ |  | - | ------- | -
|                               |  | Successor    |         |   | Predecessor 
|                               |  | December 29, |         |   | December 30,
|                               |  | 2001         |         |   | 2000        
|                               |  |              |         |   |             
|Total deferred tax assets      |  | $            | 43,139  |   |              |  | $ | 23,773  |  
|Total deferred tax liabilities |  |              | (41,617 | ) |              |  |   | (6,053  | )
|Valuation allowance            |  |              | (1,137  | ) |              |  |   | (17,335 | )
|                               |  |              |         |   |              |  |   |         |  
|Net deferred tax asset         |  | $            | 385     |   |              |  | $ | 385     |  
|                               |  |              |         |   |              |  |   |         |  

F-21



---



##### 



The sources of the difference between the financial accounting and tax basis of
the Companys liabilities and assets which give rise to the deferred tax assets
and liabilities at December 29, 2001 and December 30, 2000, are as follows
(amounts in thousands):

|                          |                                        |   |              |        |  |              |   |        |        | 
|------------------------- | -------------------------------------- | - | ------------ | ------ |  | ------------ | - | ------ | ------ | 
|                          |                                        |   | Successor    |        |  | Predecessor 
|                          |                                        |   |              |        |  |             
|                          |                                        |   | December 29, |        |  | December 30,
|                          |                                        |   | 2001         |        |  | 2000        
|                          |                                        |   |              |        |  |             
|Deferred tax assets:      |                                        |   |              |        |  |              |   |        |       
|                          | Depreciation                           |   | $            | 281    |  |              |   | $      |       | 
|                          | Accrued expenses and reserves          |   |              | 4,479  |  |              |   |        | 5,929  | 
|                          | Inventory                              |   |              | 419    |  |              |   |        | 334    | 
|                          | Net operating loss carry-forwards      |   |              | 34,142 |  |              |   |        | 14,222 | 
|                          | Alternative minimum tax                |   |              | 1,382  |  |              |   |        | 2,062  | 
|                          | Other                                  |   |              | 2,436  |  |              |   |        | 1,226  | 
|                          |                                        |   |              |        |  |              |   |        |       
|                          |                                        | $ | 43,139       |        |  |              | $ | 23,773 |       
|                          |                                        |   |              |        |  |              |   |        |       
|Deferred tax liabilities: |                                        |   |              |        |  |              |   |        |       
|                          | Intangible value of contractual rights |   | $            | 41,514 |  |              |   | $      |       | 
|                          | Depreciation                           |   |              |       |  |              |   |        | 2,875  | 
|                          | Reserve for foreign losses             |   |              |       |  |              |   |        | 2,218  | 
|                          | Other                                  |   |              | 103    |  |              |   |        | 960    | 
|                          |                                        |   |              |        |  |              |   |        |       
|                          |                                        | $ | 41,617       |        |  |              | $ | 6,053  |       
|                          |                                        |   |              |        |  |              |   |        |       

Due to tax operating losses that will not be realized, no provision/benefit for
income taxes has been recorded on the accompanying statements of operations for
all periods presented. Tax expense differs from the amounts resulting from
multiplying income before income taxes by the statutory federal income tax rate
for the following reasons: (amounts in thousands)

|                                                              |  |              |        |   |             |  |              |         |            |  |   |         |   |  |   |        |  
|------------------------------------------------------------- |  | ------------ | ------ | - | ----------- |  | ------------ | ------- | ---------- |  | - | ------- | - |  | - | ------ | -
|                                                              |  | Successor    |        |   | Predecessor
|                                                              |  |              |        |   |            
|                                                              |  | Seven        |        |   | Five        |  | Year Ended  
|                                                              |  | Months       |        |   | Months      |  |             
|                                                              |  | Ended        |        |   | Ended       |  |              |         |            |  |   |         |  
|                                                              |  |              |        |   |             |  |              |         |            |  |   |         |  
|                                                              |  | December 29, |        |   | June 2,     |  | December 30, |         | January 1,
|                                                              |  | 2001         |        |   | 2001        |  | 2000         |         | 2000      
|                                                              |  |              |        |   |             |  |              |         |           
|Federal income tax (benefit) / provision
at statutory rate    |  | $            | (2,051 | ) |             |  | $            | 39,663  |            |  | $ | (46,148 | ) |  | $ | (5,971 | )
|State income taxes, net of federal
income tax benefit         |  |              | (176   | ) |             |  |              | 3,400   |            |  |   | (3,393  | ) |  |   | (439   | )
|Loss on disposed subsidiaries                                 |  |              |       |   |             |  |              | (26,912 | )          |  |   |        |   |  |   |       |  
|Professional fees                                             |  |              | 344    |   |             |  |              | 573     |            |  |   |        |   |  |   |       |  
|Change in valuation allowance for U.S
federal and state taxes |  |              | 1,137  |   |             |  |              | (17,335 | )          |  |   | 8,782   |   |  |   | 5,182  |  
|Nondeductible goodwill                                        |  |              |       |   |             |  |              |        |            |  |   | 38,640  |   |  |   | 1,425  |  
|Other, net                                                    |  |              | 746    |   |             |  |              | 611     |            |  |   | 2,119   |   |  |   | (197   | )
|                                                              |  |              |        |   |             |  |              |         |            |  |   |         |   |  |   |        |  
|                                                              |  | $            | 0      |   |             |  | $            | 0       |            |  | $ | 0       |   |  | $ | 0      |  
|                                                              |  |              |        |   |             |  |              |         |            |  |   |         |   |  |   |        |  

At December 29, 2001, the Company had U.S. regular tax net operating loss
(NOL) carry-forwards of approximately $90 million that can reduce future federal
income taxes. If not utilized, these carry-forwards will expire beginning in
2009. The Company also has non-expiring alternative minimum tax credit
carry-forwards of $1.4 million available to offset future regular taxes.

The Companys net operating loss carry-forwards of $90 million at December 29,
2001, could be substantially limited in the event of a greater than 50% change in stock
ownership of the Company. The limitation would be based on the stock value and
the Federal Exempt Tax Rate on the date of ownership change. These limitations
could create a cap on the amount of the NOLs that would be deductible each year
going forward until the amount is depleted or the time limitation on the NOLs
expire.

As of December 29, 2001 and
December 30, 2000, the Company recorded a valuation allowance of
$1.1 million and $17.3 million, respectively, representing the excess deferred tax assets over deferred tax liabilities. This valuation allowance was recorded due to the uncertainty of the realizability of its net deferred tax
assets.

F-22



---



##### 



In Mexico, the location of the Companys foreign operations, the Company pays
the greater of its income tax or an asset tax. Because the Company has
operating losses in Mexico, the Company pays no income tax, but it is subject
to the asset tax. Therefore, no provision for income taxes has been made on the
Companys books for its operations in Mexico.

12. EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per common share are computed as basic earnings per common share,
adjusted for outstanding stock options that are dilutive. The computation for
basic and diluted earnings per share are summarized as follows: (amounts in
thousands except per share information)

|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |       |  
|------------------------------------------------------------------ | ------------------------------------------------------------------ | - | ----------------- | ----- | - | ------------ | - | ------- | ---- | ------ | - | -------- | ----- | - | - | ------- | ----- | -
|                                                                   |                                                                    |   | Successor         |       |   | Predecessor 
|                                                                   |                                                                    |   |                   |       |   |             
|                                                                   |                                                                    |   | Seven Months      |       |   | Five Months  |   | Fiscal  |      | Fiscal
|                                                                   |                                                                    |   | Ended             |       |   | Ended        |   | year    |      | year  
|                                                                   |                                                                    |   | December 29, 2001 |       |   | June 2, 2001 |   | 2000    |      | 1999  
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |       
|Earnings / (loss) before extraordinary items and cumulative effect |                                                                    | $ | (5,860            | )     |   |              | $ | 96,141  |      |        | $ | (135,675 | )     |   | $ | (17,156 | )    
|Extraordinary gain / (loss), net                                   |                                                                    |   |                  |       |   |              |   | 17,182  |      |        |   | (827     | )     |   |   | (406    | )    
|Cumulative effect, net                                             |                                                                    |   |                  |       |   |              |   |        |      |        |   | (3,378   | )     |   |   |        |      
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|Net earnings / (loss)                                              |                                                                    | $ | (5,860            | )     |   |              | $ | 113,323 |      |        | $ | (139,880 | )     |   | $ | (17,562 | )    
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|Weighted shares outstanding                                        |                                                                    |   | 5,000             |       |   |              |   | 21,169  |      |        |   | 21,169   |       |   |   | 21,068  |      
|Basic earnings / (loss) per share:                                 |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|                                                                   | Earnings / (loss) before extraordinary items and cumulative
effect |   | $                 | (1.17 | ) |              |   | $       | 4.54 |        |   | $        | (6.41 | ) |   | $       | (0.81 | )
|                                                                   | Extraordinary gain / (loss)                                        |   |                   |      |   |              |   |         | 0.81 |        |   |          | (0.04 | ) |   |         | (0.02 | )
|                                                                   | Loss from cumulative effect                                        |   |                   |      |   |              |   |         |     |        |   |          | (0.16 | ) |   |         |      |  
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|                                                                   | Net earnings / (loss) per basic share                              |   | $                 | (1.17 | ) |              |   | $       | 5.35 |        |   | $        | (6.61 | ) |   | $       | (0.83 | )
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|Weighted
shares outstanding                                        |                                                                    |   | 5,000             |       |   |              |   | 21,169  |      |        |   | 21,169   |       |   |   | 21,068  |      
|Impact of dilutive options held by employees(1)                    |                                                                    |   | 62                |       |   |              |   |        |      |        |   |         |       |   |   | 110     |      
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|Aggregate shares outstanding                                       |                                                                    |   | 5,062             |       |   |              |   | 21,169  |      |        |   | 21,169   |       |   |   | 21,178  |      
|Diluted earnings / (loss) per share:                               |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|                                                                   | Earnings / (loss) before extraordinary items and cumulative
effect |   | $                 | (1.17 | ) |              |   | $       | 4.54 |        |   | $        | (6.41 | ) |   | $       | (0.81 | )
|                                                                   | Extraordinary gain / (loss)                                        |   |                   |      |   |              |   |         | 0.81 |        |   |          | (0.04 | ) |   |         | (0.02 | )
|                                                                   | Loss from cumulative effect                                        |   |                   |      |   |              |   |         |     |        |   |          | (0.16 | ) |   |         |      |  
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      
|                                                                   | Net earnings / (loss) per diluted share                            |   | $                 | (1.17 | ) |              |   | $       | 5.35 |        |   | $        | (6.61 | ) |   | $       | (0.83 | )
|                                                                   |                                                                    |   |                   |       |   |              |   |         |      |        |   |          |       |   |   |         |      



---

|(1) |  | Outstanding options with an exercise price below the average price of the
Companys common stock have been presented as common stock
equivalents in the previous table. However, due to the Companys net
losses in the seven months ended December 29, 2001, fiscal 2000
and fiscal 1999, these options have been excluded from the computation of diluted
earnings per common share, due to their anti-dilutive
effect. Although the Company reported net earnings for the five months
ended June 2, 2001, there were no outstanding options with an
exercise price below the average price of the Companys common stock
during this period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23



---



##### 



13. SUPPLEMENTAL DISCLOSURE INFORMATION

Supplemental disclosure information is as follows: (amounts in thousands)

(i) Supplemental Cash Flow Information

|              |              |  |                   |       |  |              |  |                   |  |                 |  |   |     |  |  |   |       |  |  |   |        |  |  |  |  | 
|------------- | ------------ |  | ----------------- | ----- |  | ------------ |  | ----------------- |  | --------------- |  | - | --- |  |  | - | ----- |  |  | - | ------ |  |  |  |  | 
|              |              |  | Successor         |       |  | Predecessor 
|              |              |  |                   |       |  |             
|              |              |  | Seven Months      |       |  | Five Months  |  |                   |  |                 |  |   |     |  |  |   |       | 
|              |              |  | Ended             |       |  | Ended        |  | Year Ended        |  | Year Ended      |  |   |     | 
|              |              |  | December 29, 2001 |       |  | June 2, 2001 |  | December 30, 2000 |  | January 1, 2000
|              |              |  |                   |       |  |              |  |                   |  |                
|Cash paid for |              |  |                   |       |  |              |  |                   |  |                 |  |   |     |  |  |   |       |  |  |   |       
|              | Interest     |  | $                 | 4,906 |  |              |  |                   |  |                 |  | $ | 860 |  |  | $ | 2,729 |  |  | $ | 17,826 | 
|              | Income taxes |  | $                 | 433   |  |              |  |                   |  |                 |  | $ | 167 |  |  | $ |      |  |  | $ | 495    | 

(ii) Supplemental Balance Sheet Information

Significant components of accrued expenses and other current liabilities are
summarized as follows:

|                                           |  |                   |       |  |                   |  |   |       | 
|------------------------------------------ |  | ----------------- | ----- |  | ----------------- |  | - | ----- | 
|                                           |  | Successor         |       |  | Predecessor      
|                                           |  |                   |       |  |                  
|                                           |  | Balance at        |       |  | Balance at       
|                                           |  | December 29, 2001 |       |  | December 30, 2000
|                                           |  |                   |       |  |                  
|Accrued employee compensation and
benefits |  | $                 | 6,452 |  |                   |  | $ | 5,859 | 
|Accrued rent expense                       |  |                   | 4,714 |  |                   |  |   | 3,758 | 
|Accrued capital expenditures               |  |                   | 584   |  |                   |  |   |      | 
|Customer deposit liability (See Note 2)    |  |                   | 2,491 |  |                   |  |   | 3,282 | 
|Accrued interest                           |  |                   | 3,691 |  |                   |  |   | 77    | 

(iii) Supplemental Income Statement Information

The components of interest expense, net, are summarized as follows:

|                                                          |  |                   |       |   |              |  |        |       |        |  |   |       |   |  |   |        |  
|--------------------------------------------------------- |  | ----------------- | ----- | - | ------------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ------ | -
|                                                          |  | Successor         |       |   | Predecessor 
|                                                          |  |                   |       |   |             
|                                                          |  | Seven Months      |       |   | Five Months  |  | Fiscal |       | Fiscal
|                                                          |  | Ended             |       |   | Ended        |  | year   |       | year  
|                                                          |  | December 29, 2001 |       |   | June 2, 2001 |  | 2000   |       | 1999  
|                                                          |  |                   |       |   |              |  |        |       |       
|Interest expense on debt
and capital leases               |  | $                 | 8,476 |   |              |  | $      | 805   |        |  | $ | 6,902 |   |  | $ | 18,306 |  
|Finance fees and amortization
of deferred financing costs |  |                   | 139   |   |              |  |        | 349   |        |  |   | 881   |   |  |   | 1,158  |  
|Interest income                                           |  |                   | (156  | ) |              |  |        |      |        |  |   |      |   |  |   | (73    | )
|Other                                                     |  |                   | (70   | ) |              |  |        | (4    | )      |  |   | (60   | ) |  |   | (62    | )
|                                                          |  |                   |       |   |              |  |        |       |        |  |   |       |   |  |   |        |  
|                                                          |  | $                 | 8,389 |   |              |  | $      | 1,150 |        |  | $ | 7,723 |   |  | $ | 19,329 |  
|                                                          |  |                   |       |   |              |  |        |       |        |  |   |       |   |  |   |        |  

Contractual interest expense for the five months ended June 2, 2001 and for the
year ended December 30, 2000 was $8.1 million and $20.7 million, respectively.

F-24



---



##### 



14. SHAREHOLDERS EQUITY

Employee Stock Options and Incentive Award Plan

In 1996, the Company adopted the restated Stock Option and Incentive Award Plan
(the Plan) pursuant to which incentive stock options qualifying under Section
422A of the Internal Revenue Code and nonqualified stock options may be granted
to key employees. The Plan also provides for the issuance of other equity
awards, such as awards of restricted stock. The Plan replaced and restated all
the Companys prior employee stock option plans. The Plan is administered by
the Compensation Committee of the Companys Board of Directors. The
Compensation Committee has the authority to determine the persons receiving
options, option prices, dates of grants and vesting periods, although no option
may have a term exceeding ten years. All options outstanding at the Companys
emergence from bankruptcy in 2001 were cancelled. The Plan was amended in 1999
to increase the number of shares under the Plan from 3,350,000 to 4,350,000.
In October 2001, the Committee reduced the number of shares available under the
Plan to 720,000 and granted stock options and performance stock grants to key
managers. After giving effect to outstanding awards, there were, at December 29, 2001, 431,250 remaining unissued shares under the Plan.

In 2001, the Compensation Committee granted to employees 288,750 options to
purchase shares of the Companys common stock at the stated market value on the
date of grant. These options vest 100% at the end of seven years. Vesting,
however, can be accelerated if the Company achieves certain financial goals
prior to the end of the seven-year period. Unexercised options expire ten
years from the date of grant.

Directors Stock Option Plan

In April 1997, the Company adopted the Restated Non-Employee Director Stock
Option Plan (the Directors Plan), pursuant to which stock options for up to
500,000 shares of Common Stock may be granted to non-employee directors. The
Directors Plan replaced and restated the Companys prior non-employee director
stock option plan. The Directors Plan provides for automatic grants of
options to purchase 7,500 shares of the Companys common stock to each
non-employee director serving on the date of each annual meeting of
shareholders, beginning with the 1997 annual meeting. All options outstanding
at the Companys emergence from bankruptcy were cancelled. In October 2001,
the Committee reduced the number of shares under the Plan to 180,000 and made a
one-time grant to eligible non-employee directors of options to purchase 15,000
shares. Non-employee directors also receive automatic grants of options to
purchase 10,000 shares as of the date of each annual meeting of shareholders.
Each grant is at an exercise price equal to the market value on the date of
grant. Under the option grant, 50% of the shares vest on the second
anniversary of the grant date, 25% on the third anniversary and 25% on the
fourth anniversary. All option grants are exercisable for a ten-year period.
In 2001, the Compensation Committee granted to directors 60,000
options to purchase shares of the Companys common stock. The remaining shares available for grant under the Directors Plan totaled
120,000 at December 29, 2001.

F-25



---



##### 



All Stock Option Plans

In 2001, 2000 and 1999, all exercise prices represent the estimated fair value
of the Common Stock on the date of grant as determined by the Board of
Directors. Stock option transactions during the three years ended December 29,
2001 were as follows:

|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |       | 
|--------------------------------------- | --------- | - | ------------ | - |  | ------------ |  | ------------ | ----- | --------------- | - | --------- | ----- |  | - | --------- | ----- | 
|                                        |           |   | Seven Months |   |  |              |  |              |       |                 |   |           |       |  |   |          
|                                        |           |   | Ended        |   |  | Five Months  |  | Year Ended   |       |                 |   |          
|                                        |           |   | December 29, |   |  | Ended        |  | December 30, |       | Year Ended     
|                                        |           |   | 2001         |   |  | June 2, 2001 |  | 2000         |       | January 1, 2000
|                                        |           |   |              |   |  |              |  |              |       |                
|Options outstanding beginning of period |           |   |             |   |  |              |  | 2,739,642    |       |                 |   | 2,615,421 |       |  |   | 2,582,380 |      
|Options grants                          |           |   | 348,750      |   |  |              |  |             |       |                 |   | 431,200   |       |  |   | 928,060   |      
|Options exercised                       |           |   |             |   |  |              |  |             |       |                 |   |          |       |  |   | (12,491   | )    
|Options cancelled                       |           |   |             |   |  |              |  | (2,739,642   | )     |                 |   | (306,979  | )     |  |   | (882,528  | )    
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      
|Options outstanding end of period       |           |   | 348,750      |   |  |              |  |             |       |                 |   | 2,739,642 |       |  |   | 2,615,421 |      
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      
|Options exercisable end of period       |           |   |             |   |  |              |  |             |       |                 |   | 1,245,105 |       |  |   | 760,162   |      
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      
|Weighted average option prices
Granted  |           | $ | 0.400        |   |  |              |  |             |       |                 | $ | 1.909     |       |  | $ | 4.893     |      
|                                        | Exercised |   |              |  |  |              |  |              |      |                 |   |           |      |  |   | $         | 4.500 | 
|                                        | Cancelled |   |              |  |  |              |  | $            | 4.409 |                 |   | $         | 4.611 |  |   | $         | 5.044 | 
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      
|Outstanding at end of period            |           | $ | 0.400        |   |  |              |  |             |       |                 | $ | 4.409     |       |  | $ | 4.832     |      
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      
|Options exercisable end of period       |           |   |             |   |  |              |  |             |       |                 | $ | 4.570     |       |  | $ | 4.369     |      
|                                        |           |   |              |   |  |              |  |              |       |                 |   |           |       |  |   |           |      

The following table shows the options outstanding and the options exercisable
with pertinent data related to each at December 29, 2001:

|               |  |                     |         |                     |  |           |      |             |  |          |      |  |  |          |   |  |  |  |     | 
|-------------- |  | ------------------- | ------- | ------------------- |  | --------- | ---- | ----------- |  | -------- | ---- |  |  | -------- | - |  |  |  | --- | 
|               |  | Options Outstanding |         | Options Exercisable
|               |  |                     |         |                    
|               |  |                     |         |                     |  | Weighted  |      |             |  |          |      |  |  |          |   |  |  | 
|               |  |                     |         |                     |  | Average   |      | Weighted    |  |          |      |  |  | Weighted
|               |  |                     |         |                     |  | Remaining |      | Average     |  |          |      |  |  | Average 
|Range of       |  | Number              |         | Contractual         |  | Exercise  |      | Number      |  | Exercise
|Exercise Price |  | Outstanding         |         | Life                |  | Price     |      | Exercisable |  | Price   
|               |  |                     |         |                     |  |           |      |             |  |         
|$0.40 - $0.40  |  |                     | 348,750 |                     |  |           | 9.82 |             |  | $        | 0.40 |  |  |          | 0 |  |  |  | N/A | 

Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock,
par value $1 per share, with such terms, characteristics and designations as
may be determined by the Board of Directors. No such shares are issued and
outstanding.

Shareholder Rights Plan

In January of 1997, the Companys Board of Directors approved a Shareholders
Rights Plan (the Rights Plan). The Rights Plan provides for the distribution
of one Right for each outstanding share of the Companys Common Stock held of
record as of the close of business on January 27, 1997 or that thereafter
becomes outstanding prior to the earlier of the final expiration date of the
Rights or the first date upon which the Rights become exercisable. Each Right
entitles the registered holder to purchase from the Company one one-hundredth
of a share of Series A Participating Cumulative Preferred Stock, par value
$0.01 per share, at a price of $40.00 (the Purchase Price), subject to
adjustment. The Rights are not exercisable until ten calendar days after a
person or group (an Acquiring Person) buys or announces a tender offer for 15%
or more of the Companys Common Stock, or if any person or group has acquired
such an interest, the acquisition by that person or group of an additional 2%
of the Companys Common Stock. In the event the Rights become exercisable, then
each Right will entitle the holder to receive that number of shares of Common
Stock (or, under certain circumstances, an economically equivalent security or
securities of the Company) having a market value equal to the Purchase Price.
If, after any person has become an Acquiring Person (other than through a
tender offer approved by qualifying members of the Board of Directors), the
Company is involved in a merger or other business combination where the Company
is not the surviving corporation, or the Company sells 50% or more of its
assets, operating income, or cash flow, then each Right will entitle the holder
to purchase, for the Purchase Price, that number of shares of common or other
capital stock of the acquiring entity which at the time of such transaction
have a market value of twice the Purchase Price. The Rights will expire on
January 26, 2007, unless extended, unless the Rights are earlier exchanged, or
unless the Rights are earlier redeemed by the Company in whole, but not in
part, at a price of $0.001 per Right. In February 1998, the Companys Board of
Directors amended the Rights Plan effective March 1, 1998 to provide that
Rights under this plan can be redeemed and certain amendments to this plan can
be effected only with the approval of the Continuing Directors, which are
defined in the Rights Plan as the current directors and any future directors
that are approved or recommended by Continuing Directors.

In 2000, the Company cancelled 10,000 shares of the Predecessor Companys
Common Stock.

F-26



---



##### 



15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly data for the Company for the fiscal years ended December 29,
2001 and December 30, 2000 is as follows: (amounts in thousands except per
share information)

|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |       |       | 
|------------------------------------------------------- | ------------------------------------------- | ----------------------------- | ------ | ------------- | ----- | ----------- | --------- | ---- | ------------ |  | ----------- | ------ | ------- | ----- | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                        |                                             |                               |        | Predecessor   |       |             | Successor
|                                                        |                                             |                               |        |               |       |             |          
|                                                        |                                             |                               |        |               |       | Two Months  |           |      |              |  |             |        |        
|                                                        |                                             |                               |        |               |       | Ended       |           |      |              |  |             |        |        
|                                                        |                                             |                               |        | Quarter       |       | June 2      |           |      | One Month    |  | Quarter     |        | Quarter
|                                                        |                                             |                               |        | Ended         |       | (Restated - |           |      | Ended        |  | Ended       |        | Ended  
|FISCAL 2001                                             |                                             | March 31                      |        | See Note 17.) |       |             | June 30   |      | September 29 |  | December 29
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |            
|Net sales                                               |                                             | $                             | 74,735 |               |       | $           | 45,822    |      |              |  | $           | 18,606 |         |       | $ | 59,741 |       |       | $ | 57,196 |      
|Cost of goods sold                                      |                                             |                               | 34,525 |               |       |             | 22,879    |      |              |  |             | 8,295  |         |       |   | 26,097 |       |       |   | 27,096 |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Gross profit                                            |                                             |                               | 40,210 |               |       |             | 22,943    |      |              |  |             | 10,311 |         |       |   | 33,644 |       |       |   | 30,100 |      
|Selling, general & administrative expense               |                                             |                               | 39,071 |               |       |             | 29,306    |      |              |  |             | 9,938  |         |       |   | 31,440 |       |       |   | 30,148 |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Operating income / (loss)                               |                                             |                               | 1,139  |               |       |             | (6,363    | )    |              |  |             | 373    |         |       |   | 2,204  |       |       |   | (48    | )    
|Interest expense, net                                   |                                             |                               | 739    |               |       |             | 411       |      |              |  |             | 1,109  |         |       |   | 3,673  |       |       |   | 3,607  |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Earnings / (loss) before reorganization items and
taxes |                                             |                               | 400    |               |       |             | (6,774    | )    |              |  |             | (736   | )       |       |   | (1,469 | )     |       |   | (3,655 | )    
|Reorganization expense / (gain)                         |                                             |                               | 1,789  |               |       |             | (104,304  | )    |              |  |             |       |         |       |   |       |       |       |   |       |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Earnings / (loss) before taxes and extraordinary
gain   |                                             |                               | (1,389 | )             |       |             | 97,530    |      |              |  |             | (736   | )       |       |   | (1,469 | )     |       |   | (3,655 | )    
|Income tax expense                                      |                                             |                               |       |               |       |             |          |      |              |  |             |       |         |       |   |       |       |       |   |       |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Earnings / (loss) before extraordinary gain             |                                             |                               | (1,389 | )             |       |             | 97,530    |      |              |  |             | (736   | )       |       |   | (1,469 | )     |       |   | (3,655 | )    
|Extraordinary gain, net                                 |                                             |                               |       |               |       |             | 17,182    |      |              |  |             |       |         |       |   |       |       |       |   |       |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Net earnings / (loss)                                   |                                             | $                             | (1,389 | )             |       | $           | 114,712   |      |              |  | $           | (736   | )       |       | $ | (1,469 | )     |       |   | (3,655 | )    
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Basic earnings / (loss) per share:                      |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|                                                        | Earnings / (loss) before extraordinary gain |                               | $      | (0.07         | )     |             | $         | 4.61 |              |  |             | $      | (0.15   | )     |   | $      | (0.29 | )     |   | $      | (0.73 | )    
|                                                        | Gain from extraordinary item                |                               |        |              |       |             |           | 0.81 |              |  |             |        |        |       |   |        |      |       |   |        |      |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|                                                        | Net earnings / (loss) per basic share       |                               | $      | (0.07         | )     |             | $         | 5.42 |              |  |             | $      | (0.15   | )     |   | $      | (0.29 | )     |   | $      | (0.73 | )    
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Diluted earnings / (loss) per share:                    |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|                                                        | Earnings / (loss) before extraordinary gain |                               | $      | (0.07         | )     |             | $         | 4.61 |              |  |             | $      | (0.15   | )     |   | $      | (0.29 | )     |   | $      | (0.73 | )    
|                                                        | Gain from extraordinary item                |                               |        |              |       |             |           | 0.81 |              |  |             |        |        |       |   |        |      |       |   |        |      |      
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Net earnings / (loss) per diluted share                 |                                             | $                             | (0.07  | )             |       | $           | 5.42      |      |              |  | $           | (0.15  | )       |       | $ | (0.29  | )     |       | $ | (0.73  | )    
|                                                        |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|Supplemental information:                               |                                             |                               |        |               |       |             |           |      |              |  |             |        |         |       |   |        |       |       |   |        |      
|                                                        |                                             | Capital expenditures          |        | $             | 1,259 |             |           | $    | 825          |  |             |        | $       | 335   |   |        | $     | 970   |   |        | $     | 1,445 | 
|                                                        |                                             | Depreciation and amortization |        | $             | 2,867 |             |           | $    | 1,941        |  |             |        | $       | 1,536 |   |        | $     | 4,979 |   |        | $     | 4,910 | 

F-27



---



##### 



The Company has restated results for
the two months ended June 2, 2001, as noted above. The following
table presents the results as previously reported compared to the
restated results (amounts in thousands):

|                                                        |                                             |        |             |        |              |   |          |       | 
|------------------------------------------------------- | ------------------------------------------- | ------ | ----------- | ------ | ------------ | - | -------- | ----- | 
|                                                        |                                             |        | Predecessor
|                                                        |                                             |        |            
|                                                        |                                             |        | As Reported |        | (As Restated
|                                                        |                                             |        |             |        | See Note 17)
|                                                        |                                             |        | Two Months  |        | Two Months  
|                                                        |                                             |        | Ended       |        | Ended       
|Fiscal 2001                                             |                                             | June 2 |             | June 2
|                                                        |                                             |        |             |       
|Net sales                                               |                                             | $      | 45,822      |        |              | $ | 45,822   |      
|Cost of goods sold                                      |                                             |        | 20,236      |        |              |   | 22,879   |      
|                                                        |                                             |        |             |        |              |   |          |      
|Gross profit                                            |                                             |        | 25,586      |        |              |   | 22,943   |      
|Selling, general & administrative expense               |                                             |        | 25,906      |        |              |   | 29,306   |      
|                                                        |                                             |        |             |        |              |   |          |      
|Operating income / (loss)                               |                                             |        | (320        | )      |              |   | (6,363   | )    
|Interest expense, net                                   |                                             |        | 411         |        |              |   | 411      |      
|                                                        |                                             |        |             |        |              |   |          |      
|Earnings / (loss) before reorganization items and taxes |                                             |        | (731        | )      |              |   | (6,774   | )    
|Reorganization expense / (gain)                         |                                             |        | (98,261     | )      |              |   | (104,304 | )    
|                                                        |                                             |        |             |        |              |   |          |      
|Earnings / (loss) before taxes and extraordinary gain   |                                             |        | 97,530      |        |              |   | 97,530   |      
|Income tax expense                                      |                                             |        | 0           |        |              |   | 0        |      
|                                                        |                                             |        |             |        |              |   |          |      
|Earnings / (loss) before extraordinary gain             |                                             |        | 97,530      |        |              |   | 97,530   |      
|Extraordinary gain, net                                 |                                             |        | 17,182      |        |              |   | 17,182   |      
|                                                        |                                             |        |             |        |              |   |          |      
|Net earnings / (loss)                                   |                                             | $      | 114,712     |        |              | $ | 114,712  |      
|                                                        |                                             |        |             |        |              |   |          |      
|Basic earnings / (loss) per share:                      |                                             |        |             |        |              |   |          |      
|                                                        | Earnings / (loss) before extraordinary gain |        | $           | 4.61   |              |   | $        | 4.61  | 
|                                                        | Gain from extraordinary item                |        |             | 0.81   |              |   |          | 0.81  | 
|                                                        |                                             |        |             |        |              |   |          |      
|                                                        | Net earnings / (loss) per basic share       |        | $           | 5.42   |              |   | $        | 5.42  | 
|                                                        |                                             |        |             |        |              |   |          |      
|Diluted earnings / (loss) per share:                    |                                             |        |             |        |              |   |          |      
|                                                        | Earnings / (loss) before extraordinary gain |        | $           | 4.61   |              |   | $        | 4.61  | 
|                                                        | Gain from extraordinary item                |        |             | 0.81   |              |   |          | 0.81  | 
|                                                        |                                             |        |             |        |              |   |          |      
|                                                        | Net earnings / (loss) per diluted share     |        | $           | 5.42   |              |   | $        | 5.42  | 
|                                                        |                                             |        |             |        |              |   |          |      
|Supplemental information:                               |                                             |        |             |        |              |   |          |      
|                                                        | Capital expenditures                        |        | $           | 825    |              |   | $        | 825   | 
|                                                        | Depreciation and amortization               |        | $           | 1,941  |              |   | $        | 1,941 | 

F-28



---



##### 



|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |       |       | 
|----------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------- | ------- | ------- | ----- | ------ | ------ | ------------ | ----- | ----------- | -------- | ----- | ----- | - | ------ | ----- | ----- | 
|FISCAL 2000                                                       |                                                                   | Quarter Ended                
|                                                                  |                                                                   |                              
|                                                                  |                                                                   |                               |         | April 1 |       | July 1 |        | September 30 |       | December 30
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |            
|Net sales                                                         |                                                                   | $                             | 83,180  |         |       | $      | 78,783 |              |       | $           | 75,578   |       |       | $ | 70,153 |      
|Cost of goods sold                                                |                                                                   |                               | 36,745  |         |       |        | 36,287 |              |       |             | 36,338   |       |       |   | 34,088 |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Gross profit                                                      |                                                                   |                               | 46,435  |         |       |        | 42,496 |              |       |             | 39,240   |       |       |   | 36,065 |      
|Selling, general & administrative expense                         |                                                                   |                               | 45,759  |         |       |        | 42,424 |              |       |             | 41,646   |       |       |   | 36,535 |      
|Impairment on long-lived assets                                   |                                                                   |                               | 2,684   |         |       |        | 0      |              |       |             | 0        |       |       |   | 0      |      
|Restructuring expense, net                                        |                                                                   |                               | 1,601   |         |       |        | 0      |              |       |             | 0        |       |       |   | 0      |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Operating income / (loss)                                         |                                                                   |                               | (3,609  | )       |       |        | 72     |              |       |             | (2,406   | )     |       |   | (470   | )    
|Interest expense, net                                             |                                                                   |                               | 5,330   |         |       |        | 917    |              |       |             | 721      |       |       |   | 755    |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Earnings / (loss) before reorganization items and
taxes           |                                                                   |                               | (8,939  | )       |       |        | (845   | )            |       |             | (3,127   | )     |       |   | (1,225 | )    
|Reorganization expense                                            |                                                                   |                               | 0       |         |       |        | 4,379  |              |       |             | 114,521  |       |       |   | 2,639  |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|(Loss) before taxes, extraordinary loss
and cumulative effect     |                                                                   |                               | (8,939  | )       |       |        | (5,224 | )            |       |             | (117,648 | )     |       |   | (3,864 | )    
|Income tax expense                                                |                                                                   |                               | 0       |         |       |        | 0      |              |       |             | 0        |       |       |   | 0      |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Earnings / (loss) before extraordinary loss
and cumulative effect |                                                                   |                               | (8,939  | )       |       |        | (5,224 | )            |       |             | (117,648 | )     |       |   | (3,864 | )    
|Extraordinary loss, net                                           |                                                                   |                               | 0       |         |       |        | (827   | )            |       |             | 0        |       |       |   | 0      |      
|Cumulative effect, net                                            |                                                                   |                               | (3,378  | )       |       |        | 0      |              |       |             | 0        |       |       |   | 0      |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Net loss                                                          |                                                                   | $                             | (12,317 | )       |       | $      | (6,051 | )            |       | $           | (117,648 | )     |       | $ | (3,864 | )    
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Basic earnings / (loss) per share:                                |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|                                                                  | Earnings / (loss) before extraordinary item and
cumulative effect |                               | $       | (0.42   | )     |        | $      | (0.25        | )     |             | $        | (5.56 | )     |   | $      | (0.18 | )    
|                                                                  | Loss from extraordinary item                                      |                               |         | 0.00    |       |        |        | (0.04        | )     |             |          | 0.00  |       |   |        | 0.00  |      
|                                                                  | Loss from cumulative effect                                       |                               |         | (0.16   | )     |        |        | 0.00         |       |             |          | 0.00  |       |   |        | 0.00  |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|                                                                  | Net earnings / (loss) per basic share                             |                               | $       | (0.58   | )     |        | $      | (0.29        | )     |             | $        | (5.56 | )     |   | $      | (0.18 | )    
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Diluted earnings / (loss) per share:                              |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|                                                                  | Earnings / (loss) before extraordinary item
and cumulative effect |                               | $       | (0.42   | )     |        | $      | (0.25        | )     |             | $        | (5.56 | )     |   | $      | (0.18 | )    
|                                                                  | Loss from extraordinary item                                      |                               |         | 0.00    |       |        |        | (0.04        | )     |             |          | 0.00  |       |   |        | 0.00  |      
|                                                                  | Loss from cumulative effect                                       |                               |         | (0.16   | )     |        |        | 0.00         |       |             |          | 0.00  |       |   |        | 0.00  |      
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Net earnings / (loss) per diluted share                           |                                                                   | $                             | (0.58   | )       |       | $      | (0.29  | )            |       | $           | (5.56    | )     |       | $ | (0.18  | )    
|                                                                  |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|Supplemental information                                          |                                                                   |                               |         |         |       |        |        |              |       |             |          |       |       |   |        |      
|                                                                  |                                                                   | Capital expenditures          |         | $       | 2,445 |        |        | $            | 796   |             |          | $     | 1,038 |   |        | $     | 1,100 | 
|                                                                  |                                                                   | Depreciation and amortization |         | $       | 4,816 |        |        | $            | 4,682 |             |          | $     | 5,389 |   |        | $     | 2,639 | 

16. RELATED PARTY TRANSACTIONS

In 2001, 2000 and 1999, the Company made rent payments of approximately $80,000
for the St. Cloud laboratory/distribution facility, which is owned by Myrel
Neuman, a current director of the Company. The Company paid insurance premiums
of approximately $443,000 in 2000 for insurance policies purchased through an
agency in which J. Smith Lanier, II, a director of the Predecessor Company
during 2000, has a substantial ownership interest.

As part of the bankruptcy proceedings, Myrel Neumann, a Director of the
Company, has approximately $1.0 million of outstanding claims against the
Company, which are included in the Companys disputed claims reserve. These
claims originated with NVIs 1997 purchase of a company owned by Mr. Neumann.

F-29



---



##### 



17. RESTATEMENT

Subsequent to the issuance of the Companys 2001 financial statements, the
Companys management determined that the following revisions to the 2001
financial statements were required:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | Reclassification of the balance sheet
to reflect a current deferred income tax asset
and a non-current net deferred income tax liability as of December 29, 2001, and
restatement of the 2001 income tax footnote which details the Companys
deferred tax assets and liabilities to correctly reflect the deferred tax
assets, liabilities, and valuation allowance of the Company as of December 29,
2001, due mainly to 1) an unrecorded deferred income tax asset for net operating loss
carryforwards resulting from the disposition of the Companys free-standing
store locations, and 2) an unrecorded deferred income tax liability for the intangible
value of contractual rights recorded upon fresh start accounting.



| |    |                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | Reclassification of the balance sheet presentation for senior notes to reflect
a short-term senior note liability as of December 29, 2001 for a senior note
principal payment made in February 2002.



| |    |                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3) | Reclassification of certain reserves for equipment and other assets from
accrued expenses and other current liabilities to accounts
receivable, property and equipment, and
other assets and deferred costs as of December 29, 2001.



| |    |                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4) | Reclassification of certain non-reorganization expenses, which were previously
presented as reorganization expenses, in the five month predecessor period
ended June 2, 2001, to cost of goods sold and selling, general & administrative
expense.

The consolidated financial statements for the year ended December 29, 2001
contained herein have been restated to reflect all of these adjustments and
reclassifications.

A summary of the significant effects of the restatements is as follows:

|                                               |  |               |         |             |  |  |         | 
|---------------------------------------------- |  | ------------- | ------- | ----------- |  |  | ------- | 
|                                               |  | As Previously |         |             |  | 
|                                               |  | Reported*     |         | As Restated
|                                               |  |               |         |            
|At December 29, 2001:                          |  |               |         |             |  |  |         | 
|Accounts receivable                            |  |               | 3,939   |             |  |  | 3,908   | 
|Other current assets                           |  |               | 636     |             |  |  | 583     | 
|Equipment                                      |  |               | 17,731  |             |  |  | 17,049  | 
|Net property and equipment                     |  |               | 24,682  |             |  |  | 24,000  | 
|Other assets and deferred costs                |  |               | 1,561   |             |  |  | 1,332   | 
|Deferred tax asset  current                   |  |               |        |             |  |  | 3,681   | 
|Deferred tax asset  long term                 |  |               | 385     |             |  |  |        | 
|Total
Assets                                   |  |               | 168,916 |             |  |  | 171,217 | 
|Accrued expenses and other current liabilities |  |               | 25,707  |             |  |  | 24,712  | 
|Current portion of other long-term debt        |  |               |        |             |  |  | 1,597   | 
|Senior notes                                   |  |               | 120,000 |             |  |  | 118,403 | 
|Deferred tax liability  long term             |  |               |        |             |  |  | 3,296   | 
|Liabilities
and  Shareholders Equity          |  |               | 168,916 |             |  |  | 171,217 | 

|                                            |  |               |         |             |  |  |          |  
|------------------------------------------- |  | ------------- | ------- | ----------- |  |  | -------- | -
|                                            |  | As Previously |         |             |  | 
|                                            |  | Reported*     |         | As Restated
|                                            |  |               |         |            
|For the five months ended June 2, 2001:     |  |               |         |             |  |  |          |  
|Cost of goods sold                          |  |               | 54,761  |             |  |  | 57,404   |  
|Selling, general and administrative expense |  |               | 64,977  |             |  |  | 68,377   |  
|Operating income / (loss)                   |  |               | 819     |             |  |  | (5,224   | )
|Loss before reorganization items and taxes  |  |               | (331    | )           |  |  | (6,374   | )
|Reorganization
expenses / (gain)            |  |               | (96,472 | )           |  |  | (102,515 | )

These restatement adjustments have no effect on the previously reported net
loss for the seven months ended December 29, 2001 or the previously reported net
income for the five months ended June 2, 2001.



|* |  | Includes certain
reclassification adjustments made to the previously reported amounts,
which are unrelated to the restatement.
|- |  | ------------------------------------------------------------------------------------------------------------------------------

F-30



---



##### 



SCHEDULE II
NATIONAL VISION, INC.
VALUATION AND QUALIFYING ACCOUNTS
Seven Months Ended December 29, 2001, Five Months Ended
June 2, 2001, Year Ended December 30, 2000 and Year Ended January 1, 2000
(In thousands)

|                              |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |   |       | 
|----------------------------- | ----------------- | ----------------------------------------------- |  | ----------------- | ----- | -------------- |  | ---------- | ----- | ------------- |  | - | ----- | ---------- |  | - | ------ |  |  | - | ----- | 
|                              |                   |                                                 |  |                   |       |                |  | Additions  |       |               |  |   |       |            |  |  
|                              |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |  
|                              |                   |                                                 |  | Balance at        |       | Charged to     |  | Charged to |       |               |  |   |       | Balance at
|Description                   |                   | Beginning of Period                             |  | Cash and Expenses |       | Other Accounts |  | Deductions |       | End of Period
|                              |                   |                                                 |  |                   |       |                |  |            |       |              
|Predecessor:
Year ended       |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |  
|                              | January 1, 2000   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |   |      
|                              |                   | Allowance for
Uncollectible
Accounts Receivable |  | $                 | 1,274 |                |  | $          | 2,660 |               |  | $ | 631   |            |  | $ | 729    |  |  | $ | 3,836 | 
|                              |                   | Provision for
self-insured liabilities          |  | $                 | 1,638 |                |  | $          | 9,475 |               |  | $ | 2,794 |            |  | $ | 11,314 |  |  | $ | 2,593 | 
|                             
|Year
ended                    |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |  
|                              | December 30, 2000 |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |   |      
|                              |                   | Allowance for
uncollectible
accounts receivable |  | $                 | 3,836 |                |  | $          | 1,236 |               |  | $ | 1,482 |            |  | $ | 2,214  |  |  | $ | 4,340 | 
|                              |                   | Provision for
self-insured liabilities          |  | $                 | 2,593 |                |  | $          | 9,863 |               |  | $ | 2,807 |            |  | $ | 12,061 |  |  | $ | 3,202 | 
|                             
|Five
months ended             |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |  
|                              | June 2, 2001      |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |   |      
|                              |                   | Allowance for
uncollectible
accounts receivable |  | $                 | 4,340 |                |  | $          | 6,195 |               |  | $ |      |            |  | $ | 7,706  |  |  | $ | 2,829 | 
|                              |                   | Provision for
self-insured liabilities          |  | $                 | 3,202 |                |  | $          | 4,741 |               |  | $ | 1,163 |            |  | $ | 5,359  |  |  | $ | 3,747 | 
|                             
|                             
|Successor:
Seven months ended |                   |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |  
|                              | December 29, 2001 |                                                 |  |                   |       |                |  |            |       |               |  |   |       |            |  |   |        |  |  |   |      
|                              |                   | Allowance for
uncollectible
accounts receivable |  | $                 | 2,829 |                |  | $          | 320   |               |  | $ |      |            |  | $ | 1,360  |  |  | $ | 1,789 | 
|                              |                   | Provision for
self-insured liabilities          |  | $                 | 3,747 |                |  | $          | 4,894 |               |  | $ | 2,103 |            |  | $ | 7,673  |  |  | $ | 3,071 | 

S-1



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|             |  |                                                                    
|------------ |  | -------------------------------------------------------------------
|             |  | NATIONAL VISION, INC.                                              
|            
|             |  | By:  /s/ Reade FahsReade Fahs
President and Chief Executive Officer
|            
|June 3, 2003 |  |                                                                    

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on June 3, 2003 by the following persons on
behalf of the registrant, in the capacities indicated.

|                                             |  |                                                  
|-------------------------------------------- |  | -------------------------------------------------
|Signature                                    |  | Title                                            
|                                             |  |                                                  
|                                             |  |                                                  
|By:  /s/ Reade FahsReade Fahs                |  | President and Chief Executive Officer            
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/  Angus C. MorrisonAngus C. Morrison |  | Senior Vice President and Chief Financial Officer
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/ S. Lynn ButlerS. Lynn Butler        |  | Principal Accounting Officer                     
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/ Robert FloumRobert Floum            |  | Director                                         
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/  James W. KrauseJames W. Krause     |  | Director                                         
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/  Marc NelsonMarc Nelson             |  | Director                                         
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/  Jeffrey SnowJeffrey Snow           |  | Director                                         
|                                            
|                                             |  |                                                  
|                                            
|By:  /s/  Peter T. SochaPeter T. Socha       |  | Director                                         





---



##### 



I, Reade Fahs, certify that:



|1. |  | I have reviewed this annual report on Form 10-K/A of National Vision, Inc.                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report.                   

|      |  |              |  |                                           
|----- |  | ------------ |  | ------------------------------------------
|Date: |  | June 3, 2003 |  |                                           
|     
|      |  |              |  | /s/ Reade Fahs                            
|     
|      |  |              |  | Reade Fahs
Title:  Chief Executive Officer





---



##### 



I, Angus C. Morrison, certify that:



|1. |  | I have reviewed this annual report on Form 10-K/A of National Vision, Inc.                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report.                   

|      |  |              |  |                                                                       
|----- |  | ------------ |  | ----------------------------------------------------------------------
|Date: |  | June 3, 2003 |  |                                                                       
|     
|      |  |              |  | /s/ Angus C. MorrisonAngus C. Morrison
Title:  Chief Financial Officer





---



##### 



EXHIBIT INDEX

|     |  |                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|23.1 |  | Notice Regarding
Consent of Arthur Andersen LLP.                                                                                
|     |  |                                                                                                                                 
|23.2 |  | Deloitte & Touche LLP Consent                                                                                                   
|     |  |                                                                                                                                 
|99.1 |  | Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.